Corporate profits

EDITORIAL: Record corporate profits must not only benefit shareholders

Japanese companies are reporting big profits for the fiscal year that ended in March.

Many companies have racked up record profits as they recover from the slowdown caused by the COVID-19 pandemic and a weaker yen.

To pump the money they earned back into the economy, these companies should use the inflated revenue to increase salaries and pay more for goods and services provided by contractors, in addition to increasing dividend payouts. to shareholders.

Earnings for many large Japanese manufacturers, including automakers and electronics companies, were boosted by rising exports and expanding yen values ​​of overseas operations revenue due to lower currency against the dollar and other major currencies.

Toyota Motor Corp. and Hitachi Ltd. are among Japanese automakers that posted record profits for the fiscal year through March. Toyota’s operating profit for the year was nearly 3 trillion yen ($23.21 billion), as the falling yen lifted the auto giant’s bottom line by some 610 billion yen.

In the non-manufacturing sector, a series of major trading houses and oil wholesalers have seen their profits soar to levels well above past records. Soaring prices for oil and other natural resources have proven to be a boon to their profitability.

Major shipping lines also made record profits as rebounding demand for shipping pushed up shipping costs.

Businesses in some sectors, such as electric power and construction industries, on the other hand, have taken a hit from rising costs due to spikes in the prices of natural resources and materials.

However, the combined profits of all listed companies are believed to have risen sharply during the year and are expected to remain on an upward trajectory until March 2023.

The massive profits prompted many companies to increase dividends and increase purchases of their own shares. Share buybacks are generally welcomed by shareholders as they help drive up stock prices.

While listed companies and their shareholders are enjoying strong earnings growth, Japanese households are struggling to cope with growing financial burdens as rising import prices affect food and basic necessities.

Consumer prices in Japan are expected to rise about 2% this year compared to last year. Inflation rates in this country are still much lower than those in the United States and Europe. However, if wage increases fail to keep pace with inflation, household income will decline in real terms.

According to Rengo (Japanese Trade Union Confederation), the country’s largest labor organization, this year’s “shunto” spring wage negotiations led to an unimpressive wage growth of 2.1%, including a periodic wage increase.

The growth rate returned to pre-pandemic levels, but wage growth excluding annual increases was less than 1%, much slower than the pace of inflation in recent months. Cash-strapped companies should return more of their profits to workers.

It is also important to recognize the need to support small and medium enterprises supplying goods and services to large companies. These subcontractors are generally vulnerable to higher material costs.

Japanese companies should use their increased profits for purposes that help promote positive economic cycles for the nation’s future, including investments in technologies and facilities to reduce carbon emissions.

The outlook for the global economy is cloudy. Prices for natural resources and materials could remain stuck at high levels for a long time, depending on developments in Ukraine.

Rising prices for imported staples will pose a downside risk to the overall Japanese economy. It is crucial to avoid that the negative effects concentrate on households and a small number of businesses.

Avoiding this situation requires effective efforts to ensure that rising corporate profits will benefit a wide range of businesses and consumers and help increase the resilience of the entire Japanese economy.

These efforts will also contribute to the sustainability of corporate earnings growth.

–The Asahi Shimbun, May 17