Good corporate performances should lead to virtuous economic cycle

Editorial

12:30 JST, May 14, 2022

The recovery of listed companies’ business performance is becoming clearer.

While caution is needed to guard against future risks such as price increases in fuel and raw materials, it is also important to channel profits into investments in facilities and human resources to proactively boost the economy.

The announcement of business results for the business year ending March 2022 by companies listed on the Tokyo Stock Exchange has reached its peak.

The combined final profits of nonfinancial companies that were listed on the TSE’s First Section, prior to the reorganization of the exchange into the Prime and other markets, are expected to reach a record high level.

In addition to an increase in exports due to the pickup in the global economy, the depreciation of the yen has caused overseas earnings to swell in yen terms, leading to a string of record profits in the automobile, electronics and other manufacturing industries.

Many companies in the nonmanufacturing sectors also posted record profits, including shipping companies, which saw freight rates rise due to tight logistics, and trading companies, which benefited from a tailwind of high resource prices.

Airlines and railway companies suffering from the novel coronavirus pandemic are also seeing their losses narrowing. The improved performance of major companies is good news for an economy moving toward a full-fledged recovery.

Toyota Motor Corp.’s operating profit, which shows the profit from its core business, reached nearly ¥3 trillion, a record high for a Japanese company. Its sales in the United States and China were strong, and sales of high-margin models were healthy. The weak yen and cost-cutting efforts in production also boosted profits.

Hitachi, Ltd. posted its highest profit for the second consecutive business year due to growth in information technology-related businesses. Nippon Steel Corp., which has been restructuring its operations, including by closing steel mills, returned to profitability for the first time in three business years and at the same time posted the highest profit in its history, thanks in part to increased demand for steel products.

Companies with strong performances should not only put their profits into dividends for shareholders and internal reserves, but should also actively invest in growth areas such as decarbonization and digitization. It is also important to return profits to employees through wage hikes. This should lead to a virtuous cycle in the economy.

However, small and midsize companies with subcontracts tend to be vulnerable to price hikes in fuel and raw materials. The price hikes accelerated by the Ukraine crisis are likely to be prolonged.

The government must keep a close eye on the appropriateness of prices in business transactions so that the trend of good performance among large companies steadily spreads to small and midsize companies.

With its zero-COVID policy, China continues to impose lockdowns in such cities as Shanghai. If the supply chain is disrupted and the slump in Chinese consumption is prolonged, it could deal a serious blow to the future performance of companies.

Companies need to prepare for this risk through such efforts as diversifying their supply chains and further reducing costs. It is also essential to make efforts to increase the attractiveness of products and services so that the price increases in raw materials can be passed on in sales prices.

(From The Yomiuri Shimbun, May 14, 2022)