TSE-Listed Firms to Post Record Profits for 3rd Straight Year

By Daisuke Ichikawa and Kentaro Otsuka / Yomiuri Shimbun Staff Writers

1:00 JST, May 16, 2024

The combined profits of companies listed on the Tokyo Stock Exchange are expected to hit a record for the third consecutive year. The last batch of financial results for the fiscal year ending March 2024 has been released.

The weak yen, price hikes and the post-pandemic resumption of economic activities have provided a tailwind. Making good use of those profits, such as by raising wages, is essential for creating a virtuous circle in the economy.

Upward swing

“The weak yen had a positive effect, and the profits from our business in North America were quite good,” Isuzu Motors Ltd. President Shinsuke Minami said, commenting on the results during an online press conference Tuesday.

The truck maker’s final profit hit a record ¥176.4 billion, up 16% from the previous fiscal year.

Automakers have posted good financial results one after another. Toyota Motor Corp.’s net profit doubled to nearly ¥5 trillion. Enjoying brisk sales overseas, Toyota sees its operating profit rise by ¥50 billion for every ¥1 the dollar gains in value. At the beginning of fiscal 2023, it was assumed that the average exchange rate would be ¥125 to the dollar, but the actual figure was closer to ¥145.

According to a tally by SMBC Nikko Securities Inc., 919 of the companies in the Tokyo Stock Price Index (TOPIX) that had announced their financial results by Monday ― excluding financial companies and SoftBank Group Corp. ― reported net profits totaling ¥36 trillion, up 14%. Of these, 309 companies, or one-third, posted record profits.

“The weak yen had a positive effect on companies overall,” Hikaru Yasuda of SMBC Nikko said.

Reasonable earnings

The Japanese economy long suffered from deflation. Low prices are the norm, and raising prices affects sales. However, the weak yen has raised the price of imported raw materials, and prices have been hiked for a wide range of products. More than a few companies posted profits despite the increased costs.

Mitsubishi Electric Corp. raised the prices of its automotive equipment and air conditioning products, resulting in a 30% increase in net profit.

“We negotiated with our customers so that we could earn a fair profit, and we got understanding from them about our price revisions,” President Kei Uruma said.

Nissin Foods Holdings Co., which raised the price of its Cup Noodles, also saw a 20% increase in net profit.

Another factor was the resumption of post-pandemic economic activities. Tourists have come back after COVID-19 was downgraded to Category V under the infectious disease control law.

East Japan Railway Co.’s net profit doubled as revenues from fares for visitors to Japan exceeded pre-pandemic levels. ANA Holdings Inc. also saw revenues from international flights exceed domestic ones for the first time.

Wage increases

Companies have put their profits into wage hikes. According to figures on the 2024 shunto labor-management negotiations announced on May 8 by the Japanese Trade Union Confederation (Rengo), the average wage hike reached a 32-year high of 5.17%, or 1.5 percentage points higher than the same period of the previous year.

“Households will become able to cope with price hikes if wages rise,” Daiwa Securities Co.’s Kenji Abe said. “If products sell well, companies will be able to secure funds to raise wages again.”

Some companies have invested profits in supporting their business partners. Toyota Motors will allocate ¥300 billion in the fiscal year ending March 2025 to cover rising costs such as labor and raw materials. The automaker plans to add that amount to transaction prices with parts suppliers and support the digitalization of its business partners.

Exchange rate risks

The depreciation of the yen had a negative impact on some companies. S.T. Corp., a major daily necessities company, saw a 30% decrease in net profit. The exchange rate spurred a sharp rise in raw material costs. The normalization of economic activity also put pressure on the performance of shipping. Container freight rates, which had skyrocketed due to the logistical stagnation caused by the COVID-19 pandemic, declined. And many general trading companies saw their profits decline due to lower resource prices.

The stagnant Chinese economy also affected some companies’ performance. Industrial machinery firm Fanuc Corp. and Shin-Etsu Chemical Co. also saw their final profits decline.

Final profits for the 919 companies for the fiscal year ending March 31, 2025, are expected to fall 5% from the previous year, the first decline in four years. As in the previous year, many companies do not anticipate significant exchange rate fluctuations at the beginning of the fiscal year. The six major automobile companies, which boosted overall profits, are also expected to see a decline in profits. They anticipate appreciation of the yen and depreciation of the dollar, expecting an exchange rate around the ¥140 level.

Kohei Onishi of Mitsubishi UFJ Morgan Stanley Securities Co. said: “Sharp fluctuations in exchange rates will be a negative factor for corporate earnings. The earning power of companies alone may not be enough to cover the negative impact.”

Many are also concerned about the future of the U.S. economy. In the April employment report released this month, the number of employed persons in non-agricultural sectors, a figure that reflects economic trends, fell short of market expectations. The U.S. presidential election in November will also have a major influence on policy.