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Surging raw material costs have become another headache for Japanese companies emerging from the shock of the COVID-19 pandemic.

Major manufacturers posted a solid recovery in the April to June quarter, with exporters reaping the benefits of strong overseas demand in countries like the United States and China.

But major firms remain cautious about the outlook, trying to gauge how higher prices for energy, metals and other resources will impact their earnings in the months ahead.

Economists say many Japanese companies are reluctant to pass on higher raw material costs to consumers by raising prices, especially when the country’s economic recovery is fragile and uncertainty looms over the COVID-19 crisis.

“Japanese companies can absorb higher raw material costs to some extent when sales are growing,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute. “The worry is that sales will struggle to rise toward the second half (of fiscal 2021) and therefore profits will face downward pressure.”

Toyota Motor Corp. reported a record net profit for the April to June quarter but maintained its full-year earnings forecasts citing three factors: the spread of COVID-19 in emerging countries, the global chip crunch and higher raw material costs.

Nissan Motor Co. upgraded its fiscal 2021 outlook and expects a return to the black for the first time in three years as it seeks to get back on its feet after the ouster of former Chairman Carlos Ghosn. But the automaker factored in a negative impact of ¥185 billion ($1.67 billion) on its earnings on an operational basis, mostly due to higher raw material costs.

Electronics-makers are similarly vigilant. At Panasonic Corp., there was discussion about whether to make an upward revision to its full-year forecasts when announcing the April to June quarter results. In the end, the Osaka Prefecture-based company kept the outlook unchanged.

“We want to evaluate risks a little bit more,” Panasonic Chief Financial Officer Hirokazu Umeda said in late July, noting that the company may need to factor in a bigger impact from surging material costs than the current estimate of some ¥50 billion for fiscal 2021.

Behind sharp price gains in everything from crude oil to copper and aluminum is the reopening of economies, which has boosted demand.

Another factor driving the prices higher is ample liquidity provided by major central banks like the U.S. Federal Reserve, the European Central Bank and the Bank of Japan through their aggressive monetary easing, analysts say.

A surge in copper prices has coincided with a growing trend toward decarbonization that has prompted automakers to focus more on electrified vehicles, which require a substantial amount of the metal.

“Copper prices have jumped some fivefold from a few years ago and are unlikely to return (to previous levels) due to the explosion in demand. We are trying to control and cope with it,” Hitachi Ltd. Chief Financial Officer Yoshihiko Kawamura told a recent briefing.

The prices of goods traded between companies in Japan have also surged in recent months, reflecting high raw material costs, and the yen’s weakness is inflating import costs.

Many economists dismiss concerns about inflation speeding up in Japan, contrary to the United States and some European countries. But inflationary pressures from higher energy and raw material costs will likely continue.

“Companies that cannot pass on higher costs such as in the transportation and retail sectors will have difficult times,” said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

Manufacturers have led the recovery from the initial shock of the pandemic, while nonmanufacturers are still reeling under restrictions imposed to curb coronavirus infections.

“Japan lagged behind others in its coronavirus response and is now catching up in terms of vaccination rates,” Kobayashi said. “The economy is now facing two challenges coming from the outside and inside — the surge in raw material costs and the fiscal cliff.”

He was referencing the fact that the ¥106.61 trillion the government has earmarked for spending in the current fiscal year to next March is down some ¥40 trillion from actual government spending of ¥147.60 trillion for fiscal 2020.

“The economy is still far from a self-sustainable recovery,” he said.

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