Half Japan firms have no quick fix for virus pain but some eye productivity gains

Nearly half of Japan’s companies have no immediate plans in place to help counter the impact of the coronavirus pandemic, although a third of those surveyed indicated they were looking to improve productivity to cushion the blow.

The survey suggests a long path to recovery. The world’s third-largest economy is expected to shrink at its fastest pace in decades this fiscal year, with economic activity not seen returning to pre-pandemic levels for another 2 to 3 years, analysts have said.

In the latest monthly corporate survey by Reuters, 49 percent said they had no plans in place to cushion the hit to sales and profits this summer. Among transport equipment makers, Japan’s key industry, the rate was higher at about 66 percent.

However, 51 percent of the participants said they have plans to overcome the pandemic pain. About 60 percent of this group, or 30 percent of the total, said improving productivity was their top pick for dealing with the hit to business.

Reviewing business activity and planning new business were the second and third popular choices, though no transport equipment makers picked these.

In written comments, many firms said cutting costs was the best way to respond to declining demand.

“We are taking various steps, but none of them are expected to produce major effects near term,” a chemicals maker manager wrote in the June 30 to July 10 survey, conducted on condition of anonymity so respondents can express their opinions freely.

Three-fourths of the firms said their number of workers was unchanged from a year earlier, while two-thirds of transport equipment makers said their staffing level was steady.

The survey underscored the pain inflicted on the automobile sector, which significantly impacts many other industries.

Some 44 percent of transportation equipment makers have furloughed up to half their employees, versus 14 percent overall.

Global car demand has plunged since March as virus-related lockdowns kept people indoors and prompted factories to close.

While many countries have been reopening their economies, analysts say it could take up to five years for demand to recover to 2019 levels.

One in five transport equipment makers expressed concern about capital shortages, double the ratio overall in the survey.

Sales in May by Toyota, the nation’s biggest automaker, fell 34 percent from a year ago, while Nissan’s sales fell 37.3 percent and Honda’s slipped 29 percent.

Asked about business continuation plans, about 30 percent said they intend to either expand core business or find new ground, while 55 percent aim to restore business to pre-pandemic levels.

For transport equipment firms, restoring business to pre-pandemic levels was the top choice, followed by reducing or reviewing their core business.

The Bank of Japan kept monetary policy steady on Wednesday but warned uncertainty over the outlook was “extremely high” due to risks such as a second wave of infections.

Two in five firms in the survey said they were concerned about a return of deflation later this year, while 54 percent saw prices remaining flat. Just 6 percent expected prices to rise.

On prices for products and services, three-quarters said they would keep them flat in the second half. Some 17 percent said they would cut, while 8 percent intend to lift prices.

“We remain under strong pressure from clients to cut prices, but demand is so weak to begin with that price cuts won’t help boost sales,” a manager at an industrial rubber maker wrote.

A retail manager wrote: “As long as consumers’ incomes are on the decline, they will turn to cheap goods and services.”

The survey, conducted for Reuters by Nikkei Research, canvassed 496 big and midsize nonfinancial firms, with some 230 of them answering questions on the impact of the virus.