Many big companies are enjoying record profits, reflecting the steady expansion of the Japanese economy and growth in foreign sales. The depreciation of the yen and the robust economies of the United States and China have helped increase their exports. But future prospects do not warrant optimism. A possible slowdown of the U.S. economy and rise in the value of the yen must be taken into account.
In the business year that ended in March, statistics compiled by Shinko Research Institute Co. on 1,245 companies listed on the Tokyo Stock Exchange’s First Section (excluding financial companies) show that their aggregate sales increased by 8.8 percent from the previous year while aggregate pretax profits increased by 6.3 percent. More than 40 percent of these companies have registered record profits. But these companies are conservative about their prospects for the current business year ending in March 2008. A survey by the research institute shows that the growth rates of sales and pretax profits are expected to drop to 3.7 percent and 5.4 percent, respectively.
Apart from external factors such as yen fluctuations and the conditions of the U.S. economy, domestic factors are not necessarily bright. Gross domestic product for the January-March period increased by 0.6 percent in real terms from the previous quarter, or an annualized 2.4 percent. But plant and equipment investment dipped by 0.9 percent following a 2.3 percent increase in the previous quarter.
Private-sector machinery orders, except for ships and power generation-related machinery, dropped 4.5 percent in March from the previous month. The orders serve as a leading indicator of future plant and equipment investment. The GDP statistics show that nominal wages in the January-March period shrank by 0.1 percent from the previous quarter. Other statistics show that wages excluding overtime pay in March registered a decline for 11 consecutive months. Although companies face fierce competition, executives also must consider rewarding workers — an important means of propping up the economy.
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