Japanese Prime Minister Shinzo Abe’s victory in elections this month — seen as an endorsement of his economic policies — might help the nation’s biggest companies get richer, while extending a surge in bankruptcies among smaller ones.
Toyota Motor Corp and Honda Motor Co are expected to post record profits this year after the policies known as “Abenomics” weakened the yen, boosting their earnings from overseas. Aggregate net income at 196 of the largest listed companies will rise to a record ¥18 trillion (US$151 billion) this fiscal year, based on analyst estimates compiled by Bloomberg.
At the same time, the number of Japanese companies citing the weaker yen among their reasons for going bankrupt has almost tripled this year, as the surging costs of imported food, metals and construction materials squeeze small firms, Teikoku Databank Ltd said.
Japan might see a continued rise in such bankruptcies, especially among small companies outside of large cities, the research company estimated.
“There is a huge gap between the big exporting companies and smaller companies,” Norinchukin Research Institute chief economist Takeshi Minami said. “Abenomics is designed to create a strong economic structure in which the strong survive and the weak go away.”
Small and medium-sized businesses account for about 32 million jobs in Japan, more than double the 14 million offered by big companies, which gain the most from currency depreciation, a report this year by an agency at Japan’s Ministry of Economy, Trade and Industry found.
When Abe took office in 2012, Uchida Co, which supplies molds to automakers, bet on growth by building a new factory. Two years later, the company is not profitable. Indeed, Abenomics might yet put the company out of business, Uchida senior managing officer Takumi Tanaka said.
The yen’s 28 percent plunge versus the US dollar under Abe has pushed up costs for imported materials, while a sales tax increase and a 16-month decline in real wages have stymied domestic demand at Uchida’s customers, including Honda.
Japan’s economy is in its fourth recession since 2008, even as the weaker yen spurred a record stock rally.
“We expected that Abenomics would help both big companies and smaller suppliers like us, so we invested ¥800 million to build a new factory,” Tanaka said in an interview. “We dug a deep pit of risk, and now we keep waiting in the hole for the economy to get better.”
The yen broke through ¥120-to-US$1 on Dec. 4 for the first time since 2007, as Abe’s handpicked central bank chief pumped a record amount of cash into the economy to stoke inflation.
While some small firms struggle to pass on higher costs of imported materials to customers, large exporters are reporting higher profit and the total number of corporate failures is in decline.
Even as domestic auto industry sales declined in seven of the eight months since Japan’s sales tax was raised on April 1, Honda — Uchida’s biggest customer — will probably report record net income of ¥609 billion this fiscal year, according to the average of 23 analyst estimates.
Toyota forecasts annual profit of ¥2 trillion, also a record.
Abe secured a pledge last week from companies to spread the wealth generated by the weaker yen by boosting wages. Data from the Bank of Japan show the companies are hoarding record amounts of cash and also investing heavily overseas.
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