By Tetsushi Kajimoto
TOKYO (Reuters) - Business investment in Japan has been a rare bright spot in the world's third-largest economy but that may now be fading amid anxiety over an upcoming sales tax hike and global trade frictions, a Reuters monthly corporate survey showed.
Just over half, or 56 percent, predict domestic investment in factories and equipment will be flat in the next fiscal year that starts in April, while 30 percent project an increase and 14 percent a decline, the survey of more than 250 companies in Japan found.
The outlook for foreign capital expenditure was even less optimistic: two-thirds of firms expect that to remain unchanged while 19 percent see a rise and 15 percent a drop.
Figures out on Monday suggested a slump in demand may have already started. Overseas orders for Japanese machinery posted their biggest fall in more than a decade in December and manufacturers expect orders to sink further as trade friction weighs on global demand.
"We have no choice but to become cautious when we take into account the global slowdown," a manager of a transport equipment manufacturer said in the survey. Respondents' answers to questions and comments in the survey are anonymous.
"There's growing uncertainty in our overseas outlook due to the U.S.-China trade war and Brexit," a transportation firm manager wrote.
The darker outlook comes after upbeat results from the December "tankan" survey, which showed that major corporations plan to raise investment by an average 14.3 percent for this fiscal year, the highest since 1990, at the end of Japan's Bubble Era.
Despite gloom surrounding the external environment, more than two-thirds of respondents want Japan's proposed tax hike to 10 percent from 8 percent, scheduled for October, to go ahead, the survey showed.
"The sales tax must be raised this time. Japan's public finances will collapse sooner or later, which would throw the economy into turmoil, if the current balance between revenue and expenditure is left unattended," said an electric machinery maker manager.
Japan's mounting public debt, at more than twice the size of its economy, is the industrial world's heaviest.
Additionally, many firms expect to make investment in cutting-edge technologies such as artificial intelligence and the Internet of Things to expand. Popular investments include labor-saving efforts, boosting capacity and research and development, the Feb. 1-14 poll showed.
STAGNANT WAGES
Jitters over trade friction and the tax hike are also keeping a lid on wage gains.
Some 51 percent of companies polled expect wages to rise around 1.5-2 percent at annual spring wage talks between unions and companies. That's lower than last year's 2.07 percent average across all Japanese industries.
One-third of firms see wage hikes of under 1.5 percent and the remainder expect them to rise 2.1 percent or more.
Since taking office in late 2012, Prime Minister Shinzo Abe has been pushing companies to raise wages by around 2 percent to stimulate growth, and many companies have acquiesced.
Companies are wary of raising wages, even though many have been raking in hefty profits, because it commits them to higher fixed personnel costs at a time of uncertainty.
"Japanese firms are probably turning cautious about wage hikes out of fear that the U.S.-China trade friction may cause a deteriorating economic outlook," a manager of a machinery maker wrote in the survey, compiled for Reuters by Nikkei Research.
"Even though the outlook is murky, we hope to raise wages to an extent that would help employees keep their living standards and cope with the October tax hike," another machinery maker manager wrote.
BETTER WORKING CONDITIONS
Steps to improve working conditions will also be in focus during this year's labor talks, as part of Abe's reforms to curb Japan's notoriously long work hours and narrow the pay and benefit gap between salaried employees and contract or part-time workers.
The survey showed that half of Japanese firms expect overall personnel costs to increase in the coming fiscal year as they seek to encourage flexible working schedules and develop talent. Some 45 percent see personnel costs unchanged, while 5 percent see lower costs.
"Personnel costs will rise as curbing working hours per employee will force us to hire more people," a manager at an electrical machinery maker wrote.
Japan's retirement age is also seen as an issue given the aging and declining population. Currently, many firms require full-time employees to retire at 60, with an option of five more years' work for reduced pay and terms, however, the government is considering raising the age at which people would be eligible to receive pension benefits to 75 eventually.
When asked the age to which firms could raise their employees' retirement, 89 percent chose 65, and the rest opted for 70.