Strong Business Results: Utilize Good Corporate Performances to Enhance Japanese Economy

Editorial

14:29 JST, May 19, 2024

The business performance of listed companies has continued to grow. The public and private sectors should develop a strategy to vitalize the entire Japanese economy so the public can feel the benefits.

The majority of companies listed on the Tokyo Stock Exchange have announced their business results for the fiscal year ending March 31, 2024. The combined final profits of about 1,300 companies, excluding firms in the financial sector, listed in the Prime Market and the other TSE markets that make up the Tokyo Stock Price Index (TOPIX) are expected to hit a record high for the third consecutive year.

The depreciation of the yen has boosted the earnings in yen terms of companies in the manufacturing industry that earn money overseas. As the COVID-19 pandemic has abated and tourism demand has recovered, the number of inbound visitors to Japan has increased, and companies in the railroad and airline sectors, including East Japan Railway Co. and ANA Holdings Inc., also performed well.

It is good news that automobile manufacturers, which have many business partners and a broad industrial base, reported sound business results.

Toyota Motor Corp. doubled its final profit from the previous year to nearly ¥5 trillion, and Honda Motor Co. reached the ¥1 trillion level. While the growth of the electric vehicle (EV) market has slowed, sales of hybrid vehicles — a field that Japanese automakers excel in — increased in the North American market.

Also, many companies increased their profits while raising the prices of their products.

To realize a virtuous economic cycle, it will be important for major firms to allow small and midsize companies to pass on the higher cost of raw materials reflected in selling prices and to grow together.

However, the public’s sense of healthy profits is lacking. Inflation-adjusted real wages dropped for 24 consecutive months through March, and people are becoming increasingly thrifty.

To prevent a decline in consumption, large corporations need to give consideration so small and midsize companies, which employ a large number of workers, can secure the financial resources to raise wages.

While corporate performances are improving, data is increasingly showing a decline in Japan’s national strength. Nominal gross domestic product (GDP) in dollar terms fell to fourth place in 2023, being overtaken by Germany, and some predict that it will fall to fifth place by 2025, behind India.

The Japanese government and businesses must face this reality.

Aggressive investment is essential for companies to achieve higher growth. There are many promising areas such as decarbonization, digitization and labor saving.

Japanese companies should consider allocating their internal reserves that total more than ¥500 trillion to domestic investment. Another option would be to review supply chains that have expanded overseas to ensure stable procurement.

Government measures to encourage corporate growth are also important. In addition to tax breaks for investment and research and development, it is desirable to encourage collaboration with universities. If Japanese companies deepen their relationships through such means as corporate-sponsored courses, doing so will contribute to improving their technological capabilities and international competitiveness.

(From The Yomiuri Shimbun, May 19, 2024)