TOKYO: Gripped by a weaker yen, a slim majority of Japanese firms plan to pass the cost of the commodity to customers, a Reuters poll showed – a sign that inflationary pressures in the world’s third-largest economy could be mounting. Is.
Underlining Japan Inc.’s decades-long struggle to completely do away with a deflationary mindset in which companies have found it difficult to pass on costs to populations concerned about low wage growth and financial security, only 14% of firms Said they have already exceeded those costs.
But 40% plan for sometime in the future, according to a Reuters corporate survey that was conducted October 26-November. 5.
A manager at a ceramics manufacturer wrote in the survey’s comments section, “Given the faster orders and outputs and our plan to move prices onto customers from now on, the impact (of yen and commodity costs) will be quite limited.”
According to Tohru Sasaki, head of Japan Markets Research at JP Morgan, the survey results suggest that inflationary pressures may finally increase.
“Many companies are reaching a point where they have no option but to raise prices because they cannot afford the higher costs,” he said.
Sasaki noted that the gap between wholesale and consumer inflation is now at its widest in 40 years, with the consumer price index rising just 0.1% in September, compared to 6.3% in the corporate goods price index.
The chemical, auto and steel industries were most willing to pass the cost on to consumers, while the food, precision instrument and information/communication sectors were least willing.
The survey did not ask what proportion companies were planning to spend. According to research by JPMorgan, in past cost shocks over the past decades, Japanese companies have typically passed on only 50% of those costs. The one exception was 2013–2015 when 15 years of persistent deflation stalled and former Prime Minister Shinzo Abe sought to eradicate it entirely – prompting companies to pass on almost all costs.
A Reuters poll also showed that nearly eight out of 10 companies felt their profits could be squeezed in the current fiscal by rising raw material and energy costs.
The manager of a metal firm wrote, “Our subsidiary is suffering huge losses due to rising energy costs.
Prices of many commodities and energy have climbed globally, hit by the pandemic-induced supply chain disruptions and the ensuing increased competition for secure supplies. However, resource-poor Japan has also suffered a weaker yen which increases the cost of imports.
The currency has been trading at around $113-114 yen for almost a month, sharply weakening from the four-year low in October and the level of 103 seen in early 2021.
A third of Japanese companies said they expected their profits to fall if the yen’s current weakness persists.
Just under a quarter said they expected an increase in profits. A weaker yen also increases the value of profits earned abroad and can make exports more competitive in the long run. The rest said they did not expect the effect.
The survey, conducted for Reuters by Nikkei Research, promoted some 500 large and medium-sized non-financial firms participating on condition of anonymity. More than 240 firms answered questions on the impact of the weakening yen and rising energy and raw material prices.
The survey also revealed that for the current fiscal, 44% of Japanese companies are raising salaries, with most offering between 1% and 3% hikes. Another 42% of firms plan to keep salaries flat while the rest plan to cut wages.
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