Surging corporate profits and bullish forecasts suggest Japanese companies are bouncing back from the worst recession in decades, with cost-cutting firms betting on emerging markets for growth.
Many of Japan’s corporate titans saw a return to profit in the fiscal year ended March, with booming demand for new cars, electronic gadgets and factory parts in countries such as China combining with an improving domestic picture. A US$2.2 billion annual profit for the world’s biggest automaker, Toyota, despite recalling around 10 million vehicles over safety fears was emblematic of the sense of recovery, and analysts concluded it had steered through the crisis.
The benefits of restructuring and a pick-up in demand appear to be nursing the biggest companies back to health, after the hammering they received in the global downturn led to cost savings and tens of thousands of job cuts. Exports, particularly to emerging Asia, are driving what the IMF has called Japan’s “tentative” recovery from recession, and this is being increasingly reflected in the performance of Japan Inc, analysts say.
“Looking at the current figures and outlook it is clear Japanese companies are latching their hopes on emerging markets,” Okasan Securities equity strategist Hirokazu Fujiki said.
Japan’s third-largest automaker Nissan last week posted a return to the black and forecast profits to triple in the year to March next year, with its eye on soaring China sales volume, which gained 48 percent in the quarter ended March.
Chief executive Carlos Ghosn said Nissan would ramp up production to “more than 1 million cars a year” by 2012 as China’s booming economy drives demand.
Honda cited sales in India and Indonesia driving group fourth quarter revenue 27.8 percent higher year-on-year to US$24 billion with the booming Chinese market also playing a role. High-tech giant Canon Inc pointed to a sharp uptick in exports of consumer products such as digital cameras, camcorders and image scanners to Asia as a driver that enabled its first quarter net profits to triple on-year.
“Although Japanese companies have not overlooked major Western markets like the United States, it is clear that companies are focusing their strategies on Asia,” Fujiki said.
Things are also improving at home. Japan’s economy is set to grow 1.8 percent this year, according to the median forecast of Bank of Japan board members, after 2009’s 5.2 percent plummet. The economy last year emerged from its worst post-war recession, growing at a modest 0.9 percent in October-December due to rebounding exports, much of them to booming China, and government stimulus measures at home.
While the effect of the pump-priming would gradually diminish, “Japan’s exports are likely to continue increasing against the backdrop of strong growth in emerging and commodity-exporting economies,” the bank said.
However, while “Japan’s economy is starting to fire on all cylinders,” Julian Jessop of Capital Economics said, “there are also still plenty of valid concerns over deflation and the lack of structural reforms to offset Japan’s infamously unfavorable demographics.”
Soaring welfare costs for a graying population and deflation continue to burden Japan, as falling consumer prices prompt consumers to defer purchases in the hope of further price drops, with companies looking overseas for growth. In doing so, electronics giants such as Panasonic and Toshiba have seen losses narrow and forecast profits in the next year.
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