November 29, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that according to their survey result, total equipment investment* for 2009 is -17.6% from 2008 which is the biggest drop since 1990, and is also -2.7% from the original plan made in the beginning of 2009. Although business environment seems to started to improve and many companies have been making upward revision their financial performance estimation, economy outlook is not bright with drastic high yen etc. Thus in general, Japanese companies are refraining from aggressive investment, especially major manufacturers such as automobile and consumer electronics.
2009 Revised Equipment Investment Plan (In million yen)
(Source: Nikkei, translated by the author)
Industry / No. of Companies / 2009 Revised Plan (vs. 2008) / Vs. the Original Plan / 2008 Performance (Vs. 2007)
Total Industry / 1,598 / 22,668,971 (-17.6) / -2.7 / 27,525,633 (-6.1)
(Excluding Electricity) / 1,589 / 20,137,434 (-19.9) / -2.9 / 25,137,427 (-7.8)
Manufacturers / 810 / 11,715,060 (-26.1) / -3.2 / 15,847,995 (-8.2)
The survey of equipment investment trend (based on revised plan of 1,598 companies) was executed in October. According to the result, the total equipment investment has decreased from previous year for 2 consecutive years; 2008 was -6.1 from 2007 and 2009 was -17.6% from 2008. This is primarily because manufacturers’ drop is as big as -26.1%. Non-manufacturers’ is -6.2% which is comparatively small but it is second to -9.1% in 2002 when IT bubble collapsed.
Looking by industry, among 17 manufacturers, 15 excluding food and pharmaceuticals are minus from 2008, among which 7 industries including automobile, machinery and electronics are decrease in more than 30%. For non-manufacturers, 4 industries including electricity (+6%) and transportation (+10.3) are plus from 2008 but the remaining 12 industries including telecommunications and retailers are minus.
In addition, many companies are further cutting investment from the original plan. For example, Nippon Steel Corporation cut its original plan of investment for production capacity increase by 50 billion yen to 340 billion yen, and Toyota cut by 70 billion yen to 760 billion yen, leading to -3.2% from the original plan for overall manufacturers. Non-manufacturers’ is -2.2% from the original plan, which is minus in 11 years, attributing especially to maritime transportation (-30.7%) and land transportation (-10%).
According to the government, flash report of July-Sep GDP is +4.8% from the previous quarter which is plus for 2 consecutive quarters and equipment investment also increased after 6 quarters. This may well mean that production that had once dropped due to global economic crisis started to recover; however, there are anxieties of another plunge in economy and high yen. When looked by yearly, it is quite possible that companies are really tightening their investment.
If this circumstance should continue, an expert points out that with companies relying more on their revenue from external demand, it cannot be avoided that equipment will be invested overseas.
* Equipment Investment and Economy
(Source: Nikkei, edited and translated by the author)
Equipment investment of companies is an important constituent of GDP, and is a metrics of business climate outlook. Increase in investment means that economy is expanding, and decrease in investment means plunge in economy. In general, GDP growth rate and equipment investment increase-decrease rate are linked in many cases.
Primary objectives of investment include increase in production, renewal of old equipment and countermeasures of safety and environment. Investments such as new factory construction and implementation of large machinery have big positive impact on related industries and leads to economic expansion.
2009年11月29日日曜日
2009年11月22日日曜日
How Japan Can Get Out From 10 Year Deflation?
November 22, 2009 – Osaka, Japan
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
2009年11月15日日曜日
Japan-US Summit – A Step to a New Japan-U.S. Relationship?
November 15, 2009 – Osaka, Japan
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
On November 14, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported on Japan-U.S. summit and on joint press conference of Prime Minister Yukio Hatoyama and U.S. President Barack Obama sharing a firm handshake in front of the cameras at their bilateral meeting, held on Friday evening of November 13. It was the first time for Mr. Obama to visit Japan, and second time for the two leaders to meet since September in New York. The summit was held for 1-1/2 hours, and after dinner, the two leaders had an exclusive discussion for 15 minutes.
The two leaders affirmed the importance of further deepening and developing the Japan-U.S. alliance and agreed on starting discussion between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010. Also, they agreed on making efforts to solve the issue quickly of relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture, which was agreed to by Tokyo and Washington in a 2006 accord, and confirmed on collaboration in aiding Afghanistan and solving nuclear issue of North Korea and Iran. The main points discussed by the two leaders are as below.
Main Points Discussed by the Two Leaders
(Source: Nikkei, translated by the author)
1. Affirmed the importance of further deepening and developing the Japan-U.S. alliance.
2. Discuss for a year between the two governments towards 50th anniversary of the Japan-US Security Treaty Amendment in 2010, and draw out a conclusion.
3. Agreed on making efforts to solve quickly relocation of U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.
4. Mr. Hatoyama expressed maximum 5 year aid of 5 billion USD to Afghanistan, to which Mr. Obama expressed gratitude.
5. Cooperation on nuclear issue of North Korea and Iran.
6. Agreed on 80% GHG reduction by 2050, and on collaboration to succeed COP 15.
After the discussion, joint press conferment was held, in which, regarding the new discussion between the two governments on the Japan-US Security Treaty, Mr. Hatoyama expressed, “I would like to create future-focused and constructive new alliance” and Mr. Obama added, “I would like to look back on past achievements and proceed the next step.” Mr. Hatoyama also emphasized that “the Japan-U.S. alliance is the fundamental of everything”, and regarding concept of “East Asia Community” that he advocates, expressed that the U.S.’s involvement is inevitable by saying “It is with the firm Japan-U.S. alliance that I advocate this concept.”
It is only once that the Japan- US Summit ended without any agreement. That was in 1994 when President Clinton requested starting discussion on trade framework, to which Prime Minister Hosokawa refused. The U.S. immediately countercharged by such measures as navigating to high yen.
This summit was full of smile, and such issues as elimination of nuclear weapons and global environment were documented; however, inner workings are more serious than 15 years ago. It is highly desired that blue print for each issue is drafted and executed immediately, which requires strong leadership of the two leaders.
2009年11月7日土曜日
Japanese Companies to Bottom-Out Fiscal Year Ending March 2010, but Demands Caution
November 7, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that financial performance of Japanese listed companies in total to bottom-out by the end of the fiscal year (FY) ending March 2010, according to estimation of head quarters of the companies. Consolidated profit for FY ending March 2010 is estimated to be +0.7% vs. previous year, although the estimation in August was -9%. This is because of reduction in fixed cost* and economy-boosting measures of governments of various countries, which led to drastic improvement in profit and loss (P/L) of consumer electronics and automobiles. However, there are anxieties such as ongoing high yen situation and improvement of business climate likely to terminate after January 2010. Therefore, some experts view that outlook demands caution.
Increase/Decrease of Consolidated Profit by Industry: Consumer Electronics and Automobile are the Drivers of Recovery
Source: Nikkei (translated by the author)
Increase From Previous Year
Electronics / 1 .484 trillion yen
Oil / 734 billion yen
Automobile and Components / 50.63 billion yen
Electricity etc. / 1.263 trillion yen
Decrease From Previous Year
Steel / -1.2145 trillion yen
Trading / -61.84 billion yen
Machinery / -36.91 billion yen
Marine Transportation etc. / -1.478 trillion yen
Nikkei reports that the data used are of 940 companies who have finished making financial announcement for first half of 2009 (April-September 2009) by November 6, 2009 (excluding financial institutions). These companies cover 78% of total market value.
According to the current analysis, consolidated profit for FY ending March 2010 is expected to be +0.7% from previous year, which is 9.8 trillion yen. Some experts view that the speed of recovery is more than anticipated and it is possible that the final performance achievement would be better than this. Consolidated profit of listed companies was directly and negatively impacted by the worldwide economic crisis, resulting in decrease in profit first time in 7 quarters, by more than 60%.
Improvement in revenue by quarter has been evident since January this year. January-March in loss was the bottom, and it went back in black in total for April-June, and the profit increased for July-September, meaning consecutive improvement. This is the reason for the favourable outlook for the total FY year ending March 2010.
The driver for the performance improvement is reduction in fixed cost. Sales are estimated to be approximately 343 trillion yen which is -13% from previous year but the profit is estimated to be about the same with previous year because cost reduction by companies is ongoing with the greater speed than originally assumed. For example, Komatsu is to double the amount of fixed cost reduction to 50 billion yen. Thus, profit ratio of listed companies in general is to improve, highlighting the recovery driven by rationalization.
Economy-boosting measures by the government played as a driver for the performance improvement as well. Consumer electronics that posted large amount of loss benefited from eco-point system, an economy-boosting measure implemented by the Japanese government, and their sales (e.g. TV) increased, leading to increase in profit by almost 1.5 trillion yen. Automobiles and components are also estimated to increase their profit by approximately 500 billion yen, going back to black. For example, Nissan is benefiting from positive effect of government’s economy-boosting measures designed to promote buying new cars to replace old ones, to revise its original outlook of increasing loss to 20 billion yen in profit. Improvements in oil attributing to increase in resource price are also evident.
On the other hand, financial performance of steels and machinery are deteriorating. This is because their primary customers of automobile and electronics are still cautious of facility investment and production increase. Trading companies are also to decrease their profit because their automobile and steel businesses are struggling.
The outlook for the future remains uncertain. There are many companies that out-perform vs. original plan for April-September but estimation for total year remains the same. For example, VP of JFE Holdings comments that it is doubtful whether the improvement in steel stock demand continues, and that high yen is also an anxiety factor. Many management executives are not confident in sustainable business improvement because of doldrums of consumer spending and employment.
* Brief Explanation on Fixed Cost (source: Nikkei, edited and translated by the author）
Fixed Cost is the cost that is constant regardless of fluctuation in sales of a company such as employment cost of back office department and depreciation cost of plant and equipment. On the other hand, cost that fluctuates linking with by production volume and sales such as raw material cost and operating labour cost are called “variable cost”. Many companies cut fixed cost to quickly recover their profitability when they face drop in sales.
Sales equaling total of fixed and variable cost is called break even point. Dividing this by sales is break even point ratio. According to Nikkei’s analysis of 1633 listed companies (non-consolidated), this ratio was about 80% before 2007 but for 2008 it increased to more than 89% because the reduction in fixed cost was not in par with drastic drop in sales and revenue.
2009年11月1日日曜日
Financial Improvement in Japanese Listed Companies
November 1, 2009 – Osaka, Japan
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
Today, Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in general financial performance of Japanese listed companies has been continuously improving for two consecutive quarters. Nikkei analyzed financial performance of listed companies for July-September 2009, and the result was that the total consolidated profit was 2.3 times that of April-June 2009, meaning improvement for two consecutive quarters. The improvement is because of rationalization/cost reduction efforts especially of manufacturers and termination of sales drop attributing to economy-boosting measures* by the government of respective countries. Having said that, whether the performance improvement continues is a question because the positive effect of government policies has taken a round and the high yen still continues.
Consolidated Profits of Major Companies (100 million yen)
Source: Nikkei (translated by the author)
Company Name / July-September / April-June
Increase in Black Companies
Honda / 661 / 54
Mitsubishi Corporation / 831 / 619
Komatsu / 97 / 87
Returning to Black Companies
Panasonic / 253 / -517
JFE / 98 / -672
Mitsui OSK Lines / 14 / -114
Decrease in Red Companies
Hitachi / -293 / -808
Nippon Steel / -302 / -556
Sony / -170 / -329
Deterioration in Performance Companies
Nintendo / 457 / 648
Japan Tabacco / 563 / 788
Kawasaki Kinsen / -271 / -227
Notes: EBIT (Earnings before Income Tax) for companies using GAAP, profit in Japan auditing principle for others
Nikkei reports that the data used for analysis is of 527 companies that have finished making financial announcement for 2009 Q3 by October 30, 2009 (excluding financial institutions). These companies cover 63% of total market value industry-wide.
Their performance was negatively impacted by the worldwide economic crisis and went to red January-March. It went back to black in total April-June (97.49 million yen in black) with rationalization but manufacturers remained in red in total by 25.47 billion yen. And for July-September their performance in total was in black by 2.2021 trillion yen, and manufacturers in total also returned to black after three quarters by 81.58 billion yen. 68% of companies have improved from April-June.
Increase in sales was the driver for performance improvement. Consolidated sales for July-September increased by 10% from April-June, marking the first sales increase of a quarter (vs. previous quarter) after four quarters. Revenue of manufacturing companies increased by 12% from the previous quarter.
Favourable Japan domestic market sales also contributed to performance improvement. This was driven by economy-boosting measures designed to promote consumer purchase of environmentally-friendly products. Honda increased its sales by 3% and Mazuda by 31% from previous quarter with the economy-boosting measures, leading to favourable sales of fuel-efficient cars benefiting from tax reduction of eco-friendly cars (eco = ecology & economy). Panasonic also benefited from economy-boosting measures and its domestic sales/revenue of TV and washing machine increased by 9%. Steel giants that supply materials including Nippon Steel and other three companies increased their sales/revenue.
Aggressive demand of China and other emerging countries also contributed to performance improvement. LCD sales of Sharp for July-September were 22.23 billion yen which was 26% increase from the previous quarter. This highly attributes to Chinese government’s measures designed to promote penetration of consumer electronics in which 13% cash back is given as subsidy to consumers who purchase consumer electronics.
Further rationalization efforts by manufacturers also greatly contributed to performance improvement. Fujitsu reduced cost by 40 billion yen which led to returning to black for July-September. Toshiba originally planned to cut fixed cost by 67 billion yen but increased the amount of fixed cost cut to 200 billion yen for April-September.
Although the performance has been improving, performance for 2009 for total industry is still at low level compared with previous year of 2008 and there are still concerns; therefore, the outlook is not necessarily bright. 2009 sales is 23% and profit is 42% of 2008. Demand recovery of developed countries is still ongoing, and Sony’s CFO comments that Christmas season also needs to be promoted with cautiousness. Senescence of economy-boosting measures and high yen are also concerns. Since incentives of respective countries designed to promote buying new cars to replace old ones is to end soon, it is quite possible that there comes a “rebound” after April 2010, as Honda’s VP comments. Three ship giants including NYK Logistics made downward revision of their performance outlook for fiscal year ending March 2010, but they may need to further make downward revision because of high yen.
*Brief Explanation on Economy-Boosting Measures
(source: Nikkei, edited and translated by the author）
This is policies by the government including financial policy with the objectives of stabilizing economic situation. With worldwide economic crisis, government of respective countries one after another adopted policies to stimulate consumer spending, leading to economic recovery. In Japan, incentives to promote consumers purchasing environmentally-friendly products were given for 2009 (due to end March 2010). Tax reduction and subsidies were given for consumers buying eco-friendly cars. Also in Japan, eco-point system in which points achieved by purchasing energy-saving consumer electronics can be changed with local specialty products. In the U.S, subsidy for buying fuel-efficient cars to replace old ones was provided (ended August 2009). Germany also adopted the same incentive (ended September 2009). And China adopted a tax incentive measure for consumers buying small cars (due until end of 2009) and a subsidy incentive for consumers buying consumer electronics (due until 2012).
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