Japanese companies are expected to post record profits for the fifth consecutive business year, supported by robust chip demand driven by the artificial intelligence revolution and Japan's monetary policy normalization.
Solid consumer spending, backed by another round of sharp wage hikes expected in 2025, and government stimulus measures to offset inflation, will likely support sectors sensitive to domestic demand such as retailers and food makers.
Still, analysts say U.S. President-elect Donald Trump's tariff threats and the possible turnaround of the weakening Japanese currency could crimp profit growth at export-oriented manufacturers such as automakers.
"We expect steady profit growth to continue into fiscal 2025," Masaki Motomura, senior equity strategist at Nomura Securities, said.
Pretax profits at listed companies in Japan are forecast to grow 6.1 percent in fiscal 2025, following an estimated 7.4 percent rise in the current fiscal 2024, according to Nomura Securities.
SMBC Nikko Securities projects listed companies' pretax profits will grow 6.5 percent in fiscal 2025 and 7.1 percent by the end of the current fiscal year, while Daiwa Securities expects 6.7 percent growth for listed companies in the new business year and an 8.0 percent increase this fiscal year.
Chip demand will continue to grow led by AI development worldwide. The electric and precision sector, which includes chip-related companies, will be a key driver for overall growth, with an estimated 16.0 percent jump in pretax profit in fiscal 2025, according to Nomura's forecast.
The sector will also be supported by a recovery in orders from the auto and industrial machinery sectors after a temporary slowdown caused by companies holding excess inventory, Motomura said.
The financial sector is also expected to contribute to higher profits, analysts say. Banks are likely to improve margins in their loan businesses with the Bank of Japan on track to raise interest rates in 2025 after the central bank did so twice in 2024, including its first rate increase in 17 years in March.
Higher interest rates resulting from the BOJ's normalization of its negative rate policy will also help insurance companies improve investment returns for customers.
Backed by record profits in recent years, Japanese companies are expected to continue to offer substantial wage increases during labor-management negotiations beginning in early 2025.
Japan saw an average wage increase of 5.1 percent in 2024, the largest rise in more than three decades, according to the Japanese Trade Union Confederation, but wage growth still failed to keep pace with inflation.
Real wages rose 1.1 percent from a year earlier in June 2024 to mark the first inflation-adjusted gain in 27 months, but fell back into negative growth as the impact of higher summer bonuses waned.
The government expects Japan's nominal wage growth to outpace inflation in the year to March 2025 and the following year, with Prime Minister Shigeru Ishiba insisting businesses ensure pay increases exceed inflation.
But Trump's proposal for 10 to 20 percent tariffs on all imports into the United States and his plan to levy 25 percent tariffs on products from Canada and Mexico threaten to squeeze exporter profits. The higher tariffs could cause an inflation resurgence for American consumers and dent private consumption.
A strengthening of the Japanese currency would also cut into profits for exporters.
If Trump's trade policy increases inflation, the Federal Reserve's predicted interest rate cuts could be jeopardized. That, in conjunction with an increasingly hawkish BOJ looking to raise rates further, is expected to put downward pressure on the dollar in 2025 after soaring close to the 162 yen line in mid-2024, its highest level in over 37 years.
"Trump's policies create significant uncertainty. Both exchange rates and interest rates are likely to become volatile," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
Kenji Abe, chief strategist at Daiwa Securities, expects every time the Japanese currency strengthens by 1 yen against the dollar, fiscal 2025 pretax profits of Japanese companies are forecast to fall by 0.4 percent.
But Ichikawa said corporate executives should not be excessively concerned about tariffs as he believes Trump is using them as a negotiation tool and not to hurt the global economy.
"Therefore, I don't believe there is much reason to be overly pessimistic about corporate earnings in fiscal 2025," Ichikawa said.
© KYODO
20 Comments
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リッチ
while the average salary of a full time employee is nearly the same as Taiwan and other emerging economies. It’s greed and profits that have dominated Japan business. The rich get richer and the working poor stay poor.
BigP
A visit to family in The States or Europe is now beyond my pay grade. Record profits for who? Not us workers!
MarkX
I just have to laugh at this headline! It was only a few days ago we read that if the gov't goes ahead and raises the minimum wage to , oh my god, Y1500 so many companies will have to shut down! Now we are told about record profits and huge pay raises. It just goes to show that Japan is being divided into the few lucky ones who work for the largest companies that the gov't favors, and then the rest of us who are just trying to get by!
Asiaman7
Rising corporate profits are nice, but rising salaries exceeding inflation would be nicer.
Unfortunately, Japan has had zero or negative growth in inflation-adjusted real wages for 33 of the last 35 months.
Asiaman7
Again, we must remember that this “average wage increase” applies only to the 16.3% of workers who are unionized.
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https://www.nippon.com/en/japan-data/h02044/
Asiaman7
In comparison, Robert Walters, a leading specialist recruitment consultancy in Japan, offered its non-unionized permanent staff a raise of 2.3% in 2025.
Abe234
It kind of reminds me of the dot com bubble. If you wanted to make a lot of money just stick dot com on your company or just say dot com and we’ll make money. Now just write A.I and do a presentation or say A.I a bunch of time and watch share prices soar, it’s another tech bubble. Some will live and some will burst.but it’s gonna take time.
dbsaiya
"Real wages rose 1.1 percent in June 2024 for the first inflation-adjusted gain in 27 months, but fell back into negative growth as higher summer bonuses faded." For the average reader, the key takeaway starts after the "but."
JeffLee
A nation of rich corporations and poor people. You can thank the "market reforms" of a few years back, which nearly everyone (except me) were cheering.
WoodyLee
"" Japan saw an average wage increase of 5.1 percent in 2024, the largest rise in more than three decades, according to the Japanese Trade Union Confederation, but wage growth still failed to keep pace with inflation.""
Corp. Record profits but very little if not ZERO impact on the employees, until these businesses keep up with inflation the average salary will continue to be below what is needed to keep ahead.
GBR48
quote: AI development worldwide.
We don't trust it, like it, want it or need it. We also don't want the AI PCs or Clippy AI in Windows 11, which is why they are not shooting off the shelves.
quote: substantial wage increases.
Yeah, course they will. 10%, 20%, perhaps 30%. You are all going to be rich. No, wait...
quote: Solid consumer spending.
I seem to recall numerous articles on here stating that people are tightening their belts. My memory must be glitching.
quote: The government expects Japan's nominal wage growth to outpace inflation.
That's the official 'nearly 2%' figure, not the much, much higher real levels of retail inflation that are hurting everyone and shrinking the chocolate bars.
quote: to put downward pressure on the dollar.
In their dreams. Nothing the BoJ does will put pressure on the dollar. That's not how it works.
quote: corporate executives should not be excessively concerned...
...because they are rich and will be fine whatever happens.
I'm sure we all sleep more peacefully knowing that the rich are getting richer at our expense.
grc
MarkX and dbsaiya - between you, you have Japan in a nutshell. Both nicely made points
Mr Kipling
And for the 5th straight year they will be passing those profits on to their workers?
No of course not.
The_Beagle
Since 2020 there has been a massive transfer of wealth from individuals and small businesses to large corporations.
WeiWei
Classic Kyodo propaganda, should not be allowed anywhere and still this ”news” is everywhere.
The title has two false news, the profits have nothing to do with AI or Bank of Japan which policy has NOT changed in 15 years.
The profits are due to inflation exceeding wake hikes. Plain and simple.
Abe234
リッチToday 07:01 am JST
I have to agree. I think we have focused so much on Wall Street or the Stock market that we have forgotten a basic fundamental of money. If we have $1, we cannot give that very same dollar to A) the workers and B) the shareholders C) the CEO. You cannot spend it twice. And if a CEO has one eye on his share options and another on profits he must have an eye on the staff's salary., because he can cut staff or staff pay. We as consumers, complain about PRICES GOING up, and at the same time, we complain we didn't get a pay rise. Well, if the prices went up, and the staff's pay didn't rise at the rate of inflation, then that is a salary cut, but the profits went up, and that has to be fed to the shareholders. It is also US as CONSUMERS, who decide where to spend that money, and if we don't have enough salary, then that will squeeze company profits in other sectors. So, it is the consumer who drives the creation of jobs, not some entrepreneurs who think they create jobs. It is both! I also believe what we save today, will be taken away in 40 years as governments by means testing the pension. Infact the facts speak for themselves. The working person in the U.S has seen their salary increase by about 20% since the 1980s. The average CEO has seen their pay increase by 1000%. If our salary had kept inline with say CEO pay, or even HOUSE PRICES, I wonder how much would we have earned? Or I can rephrase that, how much have the CEO's, done the workers over? But i wonder, why do sharholders get to vote on CEO pay, but not on the staffs pay? and why is his 1000% seen as great? Because he pays the masters. The shareholders. But it is a fact the lower paid are worse off, than ever before. Heck! most can't even afford a roof over their head now. The stock market is not our Wallet.
didou
Economic cycles that do profit to a few sectors. Let’s wait a few months or years, to see the opposite article, driven by a market collapse or whatever geopolitical reason
Brian Wheway
In the UK the oil, gas sector made billions of pounds profit after tax, the government said, well we're going to give you a windfall tax, and they were charged a lot more tax, this went into the treasurey, you all know where Iam going with this next, why doesn't the Japanese government place a extra tax on some of these bigger co who are constantly making huge profits? As for a dismal 2% rise on a low income is a damn insult,
Aoi Azuuri
It's nothing but symbol of absolutely ridiculous inequality.
"Japanese firms set for 5th years record profit", But stock price that stays highest ever level is not related to many citizen who facing poverty, labours real wages are continuously down, volunteer food-aid places are increasing to over 5 times during past few years.
kurisupisu
Companies make record profits on the backs of low paid workers.
Japanese workers are being hung out to dry after being used and abused.
Talk of staff shortages is absolute tripe!
The reality is most Japanese companies rely on high turnover of staff due to poor conditions, low pay and no prospects.
Still, Japanese people are waking up to the fact that 1000 yen an hour is no lure for being run ragged and spat out…