July 15, 2020 / 11:28 PM / 25 days ago

Japan firms see no immediate fix for virus pain, some eye better productivity - Reuters poll

TOKYO (Reuters) - 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 in a Reuters poll indicated they were looking to improve productivity to cushion the blow.

FILE PHOTO : High-rise buildings are seen at the Shinjuku business district during sunset in Tokyo, Japan, May 31, 2018. REUTERS/Toru Hanai/File Photo

The survey suggests a long path to recovery for Japan. 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 2-3 years, analysts have said.

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

However, 51% of the participants said they have plans to overcome the pandemic pain. About 60% of this group, or 30% of 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-July 10 survey, conducted on condition of anonymity so respondents can express their opinions freely.

Three fourth 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.

AUTOS PAIN

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

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

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 shortage in the survey, double the ratio of overall firms who voiced such concerns.

Sales in May by Japan’s biggest automaker Toyota (7203.T) fell 34% from a year ago, while Nissan (7201.T) sales fell 37.3% and Honda (7267.T) sales slipped 29%.

Asked about business continuation plans, about 30% said they intend to either expand core business or find new ground, while 55% 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.

DEFLATION

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% saw prices remaining flat. Just 6% expected prices to rise.

On prices of their products and services, three quarters said they would keep them flat in the second half. Some 17% said they would cut, while 8% 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,” an industrial rubber maker manager 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 non-financial firms, with some 230 of them answering questions on the impact of the virus.

Reporting by Tetsushi Kajimoto; Editing by Himani Sarkar

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