Invest improved corporate earnings in ways that boost economic growth

As the global economy has been recovering from the slump caused by the novel coronavirus pandemic, the performance of listed companies is recovering rapidly. Strong-performing companies need to aggressively turn their profits into investment.

Most of the companies listed on the Tokyo Stock Exchange have announced their midterm settlements of accounts for the half-year period ending in September 2021. The combined net profits of about 1,300 companies listed on the TSE’s First Section, excluding the financial sector, were about 2.1 times greater than a year earlier. More than 70% of the companies increased their profits.

Toyota Motor Corp.’s net profit hit a record high of ¥1.5244 trillion. In addition, the manufacturing industry, including chemical and steel companies, improved its performance.

Manufacturers, which have a large share of their operations overseas, have seen their overseas earnings in yen terms swell to some degree due to the weakness of the yen, but it is also likely that their cost-cutting and other efforts to withstand the pandemic have borne fruit.

As for nonmanufacturers, major trading companies benefiting from high resource prices, and shipping companies that have been able to raise their rates amid increased demand are among those posting record profits one after another.

For the full-year term ending in March 2022 as well, about 30% of companies listed on the First Section raised their earnings forecasts. The total profits of all listed companies are expected to increase by about 30% year-on-year.

Prime Minister Fumio Kishida, advocating a “virtuous cycle of growth and distribution,” intends to encourage companies to raise wages. Companies with high earnings need to return the profits to their employees and contribute to the revitalization of the Japanese economy.

In addition, it is hoped that they will facilitate investment in future growth areas, such as decarbonization and digitization. Nidec Corp., a major motor manufacturer, is likely to post its highest profit in the fiscal year ending March 2022 as it has focused on products for electric vehicles, which are expected to be rapidly adopted for worldwide use.

Hitachi Ltd., which has transformed itself from being mainly a conventional seller of products such as home appliances to a business centering on IT-related services, posted a record profit of ¥322.4 billion for the half-year term ending in September.

It is essential to make aggressive investments that accurately reflect the changing times, while paying close attention to future causes of concern, such as rising prices of fuel and raw materials.

On the other hand, Japan Airlines Co., ANA Holdings Inc. and four listed JR companies, including East Japan Railway Co. (JR East), were all in the red as the pandemic has dragged on longer than expected.

Most of the strong-performing companies are large corporations, while the recovery of small and midsize companies has been slow. Most operators in service industries, including tourism and dining, which remain sluggish, are small and midsize companies and have many nonregular workers.

To raise the income of the middle class, which the government is aiming for, it is important to shore up the wages of not only employees of large companies but also those of small and midsize companies and nonregular workers.

The government must take necessary measures, such as preventing large companies from using their stronger position to bully contractors, and promoting cooperation between large companies and small and midsize firms to transform their businesses so that the benefits of the improved performance of large companies reach small and medium-sized firms.

— The original Japanese article appeared in The Yomiuri Shimbun on Nov. 18, 2021.