Skip to main content

Interest Rate Sensitivity of Capital Investment in Japan: An Analysis Using Panel LP-IV

日本語

November 13, 2025
Atsuki Hirata*1
Yusuke Takahashi*2
Naoya Kato*3

Abstract

This paper examines the interest rate sensitivity of capital investment in Japan. We first summarize recent global trends using macro-level statistics from advanced economies. Using firm-level financial survey data for Japanese firms, we then demonstrate how structural changes surrounding Japanese firms, such as the increase in intangible asset investment and overseas capital investment, affect interest rate sensitivity, employing a method called Panel LP-IV (Local Projection Instrumental Variables). The analysis yields several key findings: first, the interest rate sensitivity of capital investment has shown a declining trend in recent years globally. Second, intangible asset investment has a low interest rate sensitivity; consequently, firms with a higher proportion of intangible assets in their aggregate capital investment are less sensitive to interest rate changes compared to firms with a lower proportion. Last but not least, declining growth expectations and increasing labor shortages can additionally depress interest rate sensitivity. While firms with a higher overseas investment ratio showed a lower interest rate sensitivity for tangible asset investment domestically compared to firms with a lower overseas investment ratio, this difference is not statistically significant.

JEL classification
E22, E43, G31

Keywords
Capital investment, Interest rate sensitivity, Intangible assets, Overseas capital investment, Labor shortage, Growth expectations

We are grateful for valuable comments from Kosuke Aoki, Ichiro Fukunaga, Yuichiro Ito, Sohei Kaihatsu, Yoshiyasu Kasai, Takuji Kawamoto, Koji Nakamura, Kazuki Otaka, Tomohiro Sugo, and Tomoyuki Yagi in preparing this paper. We also thank the Ministry of Economy, Trade and Industry for providing survey data from the "Basic Survey of Japanese Business Structure and Activities" and the "Basic Survey on Overseas Business Activities." Any remaining errors are solely the responsibility of the authors. The views and opinions expressed in this paper belong to the authors and do not represent the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : atsuki.hirata@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan, currently at the Institute for Monetary and Economic Studies, Bank of Japan.
    E-mail : yuusuke.takahashi@boj.or.jp
  3. *3Research and Statistics Department, Bank of Japan
    E-mail : naoya.katou@boj.or.jp

Notice

Papers in the Bank of Japan Working Paper Series are circulated to stimulate discussion and comment. Views expressed are those of the authors and do not necessarily reflect those of the Bank.
If you have any comments or questions on a paper in the Working Paper Series, please contact the authors.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the Bank of Japan Working Paper Series should explicitly be credited as the source.