Japanese corporate capital expenditure increased by 8.1% year-on-year in the third quarter, according to data released by the Ministry of Finance. The rise in business spending underscores solid domestic demand, offering support to the country’s fragile economic recovery.

The capital spending growth, which surpassed the 7.4% gain seen in the previous quarter, reflects sustained investment in areas like information technology. On a seasonally adjusted basis, capital expenditure grew by 1.7% compared to the previous quarter.

This data, a key indicator of domestic demand-driven economic growth, will play a crucial role in revising Japan’s gross domestic product (GDP) figures set to be released on December 9. Preliminary estimates showed the Japanese economy expanded by an annualized 0.9% in the third quarter, slowing from the previous quarter’s pace.

Corporate sales increased by 2.6% year-on-year during the third quarter, while recurring profits fell by 3.3%. Economists noted that despite the steady appetite for investment, external factors such as political instability and China’s weakening economy could lead Japanese firms to delay future capital investments.

The positive capital expenditure data could bolster the case for the Bank of Japan to consider further interest rate hikes, especially as the economy seeks to maintain momentum. However, global uncertainties loom, including potential tariff policies from the U.S. under President-elect Donald Trump, which could disrupt supply chains and impact Japanese businesses across multiple industries.

While domestic demand remains a bright spot for Japan’s recovery, the balance of risks highlights the importance of maintaining business confidence and navigating international challenges effectively.