Allocation effects of uncertainty on resources in Japan

•We study the distributional effects of uncertainty on Japanese firms' investment.•Higher uncertainty narrows the cross-sectional dispersion of investment rate.•Investment behavior becomes more homogeneous in times of increased uncertainty.

This paper provides evidence of a negative association between macroeconomic uncertainty and the cross sectional dispersion of investment rate for a panel of Japanese manufacturing firms. We show that an increase in uncertainty leads to the narrowing of the cross section dispersion of investment rate and vice versa. This finding suggests that firms' fixed capital investment behavior becomes more homogeneous in times of increased uncertainty.