Japan firms see global inflation risk as major headwind for fiscal 2023 – Reuters poll

By Rocky Swift

TOKYO (Reuters) – Japanese firms see inflation and the chance of worldwide recession as the primary risks they face in fiscal 2023, a Reuters monthly poll showed.

Inflation in Japan has rocketed to a four-decade high, driven largely by energy prices, putting pressure on companies to lift wages to compensate for the hit to households.

March, which marks the end of the fiscal year for most Japanese companies is a time when they formulate investment and operations strategies for the next period.

Of nearly 500 major companies polled, 82% said a continuation of global inflation was a concern for their business in the coming period. In the second most common response, 59% named the risk of a global recession.

“The continued rise in input costs and higher electricity charges for our refrigeration units are likely to be major factors in squeezing profits,” said a manager at a wholesaling company, who commented on condition of anonymity.

While energy and food prices are surging, the Bank of Japan says it has still not yet met its 2% target for core inflation. Incoming BOJ Governor Kazuo Ueda has pledged to maintain stimulus to achieve that goal.

When company managers were asked about their expectations for increases in the consumer price index (CPI), the most common response, at 34%, was for a range of 1.6% to 2.0%. But a total of 43% selected ranges of 2.1% or higher, beyond the BOJ target.

After whipsaw moves in currency markets last year that saw the yen weaken to a three-decade low, spurring record intervention by Japan to shore up the currency, companies see more stability in fiscal 2023.

Nearly half see the yen trading in a range of 131 to 135 against the dollar. A majority, at 69%, said they preferred mild strengthening in the currency from the 136 level in early March.

As slowdowns and curbs from the COVID-19 pandemic fade, 85% of companies said they would increase or leave unchanged capital spending next year. The most common spending target cited was replacement of ageing equipment, at 59%.

“In anticipation of a recovery from the corona crisis, we will make the necessary investment in business development,” said a manager in the railway industry.

Corporate managers remained dour about the near-term environment, with 80% saying conditions would be “not so good” to “bad” by the end of the next three months, unchanged from the previous survey.

The Reuters Corporate Survey, conducted for Reuters by Research between March 8 and 17, canvassed 493 big non-financial Japanese firms, comprised of 246 manufacturers and 247 non-manufacturers.

They were polled on condition of anonymity, allowing respondents to speak more freely.

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