Toyota is raising spending in support of Abenomics

Article by Anita Panait, on August 14, 2013

Toyota Motor Corp. is starting to comply with a request by Japan Prime Minister Shinzo Abe for Japanese companies to spend their money in boosting the country’s economy.  Toyota has been posting profits for a series of reporting periods and recently said that its net profit for the first fiscal quarter ended June 30, 2013, almost doubled to JPY562.2 billion ($5.7 billion) – higher than the combined results at General Motors Co. and Volkswagen AG –thanks to higher sales in the United States as well as to the weakening yen.

According to data compiled by Bloomberg, the Japanese carmaker also posted an 11-percent surge in cash and marketable securities in the quarter. With lots of cash on hand, Toyota is increasing its capital spending and research expenditures 10 percent this fiscal year. It is also paying its workforce with the highest bonuses since 2008 and is planning higher dividends.

The carmaker’s moves show how Abe’s endeavors to revive Japan’s economy are gaining the backing of the country’s biggest exporter, a move that may also result to higher spending at other Japanese companies.

Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo, told Bloomberg that that so-called “Abenomics” is on its way to creating a better environment for companies. He remarked that “what Toyota spends its cash pile on” may provide indications of the future of Abenomics. 

One of the biggest challenges that Abe is facing is how to make top Japanese companies do away their conservative approach and instead spend their money to spark Japan’s stagnant economy.

In fact, the companies have cash of JPY225 trillion in the first quarter of 2013, which is much larger than Italy’s economy. Haruka Kazama, an economist at Mizuho Research Institute, Japanese companies have developed a tendency to build up car reserves in preparation for uncertainties, following the financial crisis and the March 2011 earthquake and tsunami in 2011. [source: Bloomberg]

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