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Around half of Japan firms looking to pass on rising commodity costs to customers


© Reuters. FILE PHOTO – A Tokyo industrial port, Japan. May 23, 2019, Tokyo. REUTERS/Kim Kyung-Hoon/File Photo

By Tetsushi Kajimoto

TOKYO, Reuters – A weaker yen has caused a small majority of Japanese companies to plan or have passed up rising commodity prices to their customers. This is a signal that inflationary pressures are increasing in Japan, the third largest economy.

Japan Inc’s struggle for decades to get rid of a deflationary mindset that has made it difficult for businesses to pass on the costs to an audience worried about their financial security and wage rises, is highlighted by only 14% saying they have passed those costs along.

According to the Reuters Corporate Survey, 40% of respondents plan to do so in the near future. The survey was done between Oct. 26 and Nov. 5.

In the comments section, a manager from a ceramics producer wrote: “Given our plans to shift prices onto customers and our brisk order and output, the impact of the yen (and commodity costs) will probably be quite limited.”

According to Tohru Saki, Head of Japan Markets Research at JPMorgan, the survey results indicate that inflationary pressures could finally be rising.

He said that many companies have reached a point in which they are forced to increase prices because they can’t bear higher costs.

Sasaki observed that the gap in wholesale and consumer inflation was at its greatest in more than 40 years. In September, the consumer price index increased just 0.1% while it rose 6.3% in the corporate price index.

The chemicals, autos, and steel industries were among the most willing to pass on costs to consumers, while the food, precision tools and the information/communications sectors were among the least willing.

It was not clear from the survey what portion of companies intend to pass on costs. JPMorgan research has shown that Japanese companies typically only pass on half of the costs for past shocks in cost over the decades. One exception is 2013-2015, when after 15 years of deflation persistently stopping, former prime minister Shinzo abe tried to eliminate it completely – urging companies to pay almost every cost.

The Reuters poll found that almost eight in ten companies believed their profits would be affected by the rising cost of raw materials and energy.

Manager at a metals company wrote that “our subsidiary is being hard hit by rising energy costs.”

Pandemic-induced disruptions in supply chains and increased competition have led to many commodities and energy prices rising globally. Japan, which is resource-poor, has had to deal with the weakening of its yen, which raises import costs.

About a month ago, the currency was trading between 113 and 114 yens to the dollar. It marked a 4-year low in October as well as being sharply lower than the 103 level at the start 2021.

According to a third of Japanese firms, they anticipate that their profits will decline if there is continued weakness in the yen.

A quarter of respondents said that they expected profits to rise. Also, a weaker Japanese yen will inflate profits abroad which can make exports more competitive over time. Rest of them said that they didn’t expect any impact.

The survey was conducted by Reuters Research and included 500 large and medium-sized firms that are not financial. Participants were allowed to remain anonymous. The survey surveyed more than 240 businesses to find out how the weaker Japanese yen has affected their business and the rising costs of raw materials and energy.

Survey results also revealed that 44% of Japanese businesses are increasing their pay for the current fiscal year. Most of these companies offer increases of 1% to 3%. Other 42% plan to maintain wages the same as before, while others plan to cut.