Half of Japanese companies want to pass on rising raw material costs to customers

Author: Tetsushi Kajimoto

TOKYO (Reuters) – With a weaker yen, a modest majority of Japanese companies expect commodity costs to exceed or exceed their customers, a Reuters poll showed in third place in the world where inflationary pressures could rise. economy.

In addition to emphasizing Japan Inc.’s decades-long struggle to completely eliminate deflationary thinking that has made it difficult for companies to pay costs to a population concerned with low pay rises and financial security, only 14% of companies said they have exceeded those costs. .

But another 40% plan to do so in the future, according to a Reuters poll conducted from October 26 to November 26. 5.

“Given the rapid demand and outflow and our plan to change prices from now on to customers, the impact (yen and commodity costs) will be relatively limited,” a director of a pottery producer wrote in the survey’s comments section.

The results of the survey suggest that inflationary pressures may eventually rise, according to Tohru Sasaki of JPMorgan (NYSE :), head of Japanese Market Research.

“A lot of companies are getting to the point where they have no choice but to raise prices because they can’t afford higher costs,” he said.

Sasaki noted that the gap between wholesale and consumer inflation is the largest in 40 years. The consumer price index rose by only 0.1% in September, compared to 8% in the four-year period compared to the corporate price index.

The chemical, automotive and steel industries were among those willing to pay costs to consumers, while the food, precision tools and information / communication sectors were the least likely.

The survey did not ask what proportion of costs companies want to charge. According to a study by JPMorgan, in the cost cuts of recent decades, Japanese companies as a whole have exceeded 50% of these costs. The exception was in 2013-2015, when a 15-year persistent deflation came to a halt and former Prime Minister Shinzo Abe wanted to completely eliminate it, pushing companies to overcome almost all costs.

A Reuters poll also showed that nearly eight out of 10 companies believed their profits could be squeezed by rising raw material and energy costs in the current fiscal year.

“Our subsidiary is being hit hard by rising energy costs,” wrote a director of a metal company.

Many commodity and energy prices have risen globally as a result of pandemic supply chain disruptions and consequently increased competition to secure supply. Japan, which has scarce resources, however, has also had to deal with a weakening yen that increases import costs.

The currency has been trading at around the 113-114 yen dollar for about a month, marking a four-year low in October and significantly weaker than the 103 level seen in early 2021.

One-third of Japanese companies said they expect profits to decline if the current yen weakens.

A quarter said they expect profits to increase. A weaker yen also inflates the value of foreign profits and could make exports more competitive in the long run. The rest said they did not expect an impact.

The survey of Reuters surveyed about 500 large and medium-sized non-financial companies involved on condition of anonymity. More than 240 companies answered questions about the weaker yen and the impact of rising energy and commodity prices.

The survey also showed that 44% of Japanese companies are raising their salaries for this year, with most offering increases of between 1% and 3%. Another 42% of companies expect to keep wages the same while reducing the rest of the plans.