Large Firms Must Spread Gains to Small, Midsize Companies

The impact of the COVID-19 pandemic has eased and the recovery of business performances is evident in the nonmanufacturing sector, including the airline and railway industries, following a turnaround in the manufacturing sector. It is hoped that the strong performances of major companies will spread throughout the economy.

Announcements of business results have reached a peak among companies listed on the Tokyo Stock Exchange. Combined net profits for the business year ending March 31, 2023, of nonfinancial companies that were listed on the TSE’s First Section before the stock exchange was restructured to Prime and other markets are expected to be at the same level as the previous year, when profits hit a record high.

The performances of manufacturers that earn money from exports had already improved amid the recovery of overseas economies, but nonmanufacturing companies had continued to suffer because of prolonged domestic restrictions on social activities.

Along with the normalization of economic activity, ANA Holdings Inc. and Japan Airlines Co. returned to profitability in the business year ending March 31 for the first time in three years. The same was true of East Japan Railway Co., West Japan Railway Co. and Central Japan Railway Co. Businesses such as department stores and hotels also performed well.

The increase in the number of foreign visitors to Japan has been a tailwind. Companies must continue to improve efficiency and make effective investments to expand demand and create new businesses.

The strong performances of all listed companies were due in large part to the weak yen, which increased overseas earnings in yen terms.

Major trading houses Mitsubishi Corp. and Mitsui & Co. posted net profits that each exceeded ¥1 trillion for the first time, partly due to the soaring prices of resources in which they have interests overseas. NYK Line and two other marine transport companies also posted their highest profits for the second consecutive year.

Toyota Motor Corp. posted its first decline in net profit in four years due to high raw material prices and a shortage of semiconductors, but its net profit still exceeded ¥2 trillion. The weak yen reportedly boosted profit by about ¥1.3 trillion.

Major manufacturers such as automakers do business with many related companies. Although the rising costs of raw materials are also hitting many major manufacturers, firms should give utmost consideration so that the small and midsize companies they do business with can pass on cost increases in business transactions.

Toyota is reportedly supporting parts manufacturers that are struggling with rising energy prices to strengthen the foundations of their business partners. Companies that are making huge profits should spread their gains to small and midsize companies and raise the level of the economy as a whole.

Against a backdrop of historically high prices, many major companies responded to labor union pay demands in full during this year’s spring wage negotiations.

A virtuous cycle must be realized in which increased wages stimulate consumption, leading to further increases in corporate earnings. Many companies are forecasting record profits for the business year ending March 2024. It is essential for pay hikes not to be a temporary phenomenon but to continue.

(From The Yomiuri Shimbun, May 16, 2023)