Shinjuku Station is devoid of the usual crowds amid Tokyo's ongoing state of emergency. Photo: AFP

In a nation that celebrates its salaryman as modern-day samurai and is home to globally famed brands, it takes something pretty catastrophic to delay the release of corporate earnings.

It happened in 2011 the year a giant earthquake and nuclear crisis shook Fukushima, just 240 kilometers from the Tokyo Stock Exchange. It happened after a January 1995 trembler killed more than 6,000 people in Kobe, 33 kilometers from the Osaka Stock Exchange.

Only in times of extreme turmoil can Japanese companies delay required reporting that is required as part of their fiduciary duty. One of those times is now, as a range of firms postpone their releases until the first half of May.

The reason: Covid-19 disruptions to data gathering from subsidiaries in China, the US and beyond. This has impacted reporting for fiscal year 2019, which ended in March this year, and is also impacting Q1 reports.

However, indications from the few companies that have released their results suggest Japanese investors are in for scary reading.

By the numbers

All Nippon Airways Holdings for example, saw net profit fall 75%, the biggest-ever group loss of US$549 million in fiscal year 2019. Canon’s net profit for the same period fell 30% as the Japan Inc. icon withdrew this year’s earnings outlook.

The carnage to come can be seen in frantic maneuvering in boardrooms throughout Asia’s second-biggest economy.

Nissan is expected to erase 46% of earlier projected earnings for the year that ended in March, in what’s sure to be its first net loss in 11 years. Mitsubishi Motors is seeking $2.8 billion in loans from both domestic and foreign lenders. The earlier-mentioned ANA, meantime, just secured $8.8 billion in credit amid fast-rising cash flow concerns.

Japan Inc., in other words, is skidding into a ditch as you read this.

There are some winners. Most impressive is Nintendo, which is expected to record an 80% surge in operating profit in the January-March quarter. The gaming giant is getting a lift from its hit Switch console, one doing frenetic business as locked-down consumers look to pass the time.

Just as South Korea’s Samsung and SK hynix are getting a boost from strong demand for server chips, Nintendo seems poised to reach profit highs not seen in the decade since its Wii console flew off shelves.

Rival Sony Corp., though, won’t be so fortunate. Its development team is being hobbled by coronavirus collateral damage, pushing back the planned arrival of Playstation 4. Pandemic fallout is also stymying Sony’s partnership with Microsoft on a next-generation console aimed at grabbing some of Nintendo’s Switch market share.

Macro trends

Nor does macroeconomic news auger well for broader corporate profits.

Foreign visitors to Japan are down 99.9% – averaging just 85 per day and March has already seen a 3.7% drop in industrial production.

Hence, Prime Minister Shinzo Abe’s frantic efforts to put a floor under growth. The 7.1% plunge in last year’s fourth-quarter gross domestic product happened well before Japan logged its first Covid-19 case.

Since then, outlooks for exports, factory output and retail sales have darkened rapidly. Economists including Yoshiki Shinke of Dai-ichi Life Research Institute have been warning clients that consumer prices are sure to fall steadily toward year-end.

With deflation rearing its ugly head anew, Tokyo is pulling out all the stops. On April 7, the same day he declared a coronavirus state of emergency, Abe announced a record $1 trillion stimulus package. That equated to about 20% of annual gross domestic product. Since then, there have been any number of tweaks to make the package bigger and faster.

All adults working in Japan, for example, are getting a 100,000 yen (US$937) payout. Initially, Tokyo only planned to provide unsecured zero-interest loans to small companies that could prove direct pandemic damage. Since then, it has moved to subsidize 100% of small-business salaries.

Yet the very top of Japan Inc.’s food chain is also very much in harm’s way. Goldman Sachs isn’t being hyperbolic, for example, when it warns of a record 25% contraction in Japanese GDP this quarter.

Giant exporters are suddenly on the ropes. Global output by Japan’s eight biggest automakers, for example, fell 26% in March from a year earlier. China-based production plunged 52% in March following an 86% nosedive in February. March production at Honda fell 42%, compared with 41% at Nissan, 22% at Suzuki and 20% at both Toyota and Mazda.

Nor does the outlook seem promising.

“Demand for vehicles in Japan’s domestic market will continue to weaken throughout 2020 and will provide little support to automakers to resume and ramp up production over this year,” say analysts at Fitch Solutions. “The contracting demand for vehicles from Asia, North America and Europe (Japan’s primary export markets) will further suppress Japanese vehicle production over 2020.”

Similar hits are hammering sector after sector.

Chaos in the petrochemicals industry can be seen in the 30% plunge in Asahi Kasei’s share price from a year ago. The biggest names in consumer electronics, meantime, are also in for a rough year. Panasonic, for example, just slashed its annual sales outlook by $2.3 billion, with sales likely to be 3.2% short of expectations.

Tech producers are experiencing a double whammy of sliding demand and disrupted supply chains. Asia worries that as US President Donald Trump looks for ways to hit China ahead of the November election, he might add new tariffs. Trump could make good on threats for a 25% tax on cars and auto parts that would send shockwaves across industries.

What do to?

Abe needs to think bigger. His rescue package is no match for the financial carnage to come. Along with repealing recent sales levy increases, Tokyo should be mulling corporate tax cuts, even temporary ones. He should consider offering, in extreme cases, to subside the wages of Japan Inc. giants if they avoid mass layoffs.

The Bank of Japan should set up mechanisms whereby it buys large blocks of corporate debt from major employers committed to safeguarding jobs and incomes. Abe’s team should be working with BOJ Governor Haruhiko Kuroda to cap the yen. Yes, Japan Inc. needs to kick its addiction to weak exchange rates, one that reduces the urgency for CEOs to raise their games.

Now, though, is not the time to let the yen surge.

Nor is it time for investors to be complacent about the fast-darkening storm racing Japan’s way. Disruptions may be holding up formal reporting on the state of Japan Inc. But the news looks to be even more dreadful than feared.

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