Japanese companies grow less optimistic about the economy amid a weak yen and inflation worries

A recent Kyodo News survey shows that 70% of large Japanese companies expect the economy to grow next year, up from 80% a year ago. Concerns about inflation and the impact of a weak yen on consumer spending are fueling the drop in optimism among Japanese companies.

Japanese companies lower growth expectations amid inflation and weak yen, survey shows

A Kyodo News survey conducted Aug. 11 showed that about 70% of large Japanese companies predict the country’s economy will expand in the coming year, down from about 80% a year ago. The decline is being attributed to concerns about inflation and the impact of a weaker yen on personal consumption.

In a survey of 111 companies, including Toyota Motor Corp. and cosmetics maker Shiseido Co., 72 percent predicted solid or moderate economic growth, with many respondents pointing to a recovery in consumer spending.

While that was lower than the 82 percent increase predicted last summer, the latest survey found that 23 percent expect a moderate or stagnant economy, up eight percentage points. That suggests some companies are becoming more cautious.

Eighty-four percent of those who predicted economic expansion cited a recovery in consumer spending as the reason for their response, followed by a recovery in investment spending (79 percent) and an increase in spending by foreign tourists (53 percent), with multiple responses allowed.

Sixty-four percent of those who predicted the economy would stagnate attributed it to falling consumer spending. By comparison, 48 percent attributed it to the adverse effects of a weak yen and rising prices.

Survey shows 70% of Japanese companies see profits rise, but uncertainty remains over wage policy and inflation

In addition, the study, which covered leading companies in each sector, found that seventy percent of the companies saw an increase in their profits.

While 42% of companies indicated they intend to raise prices of their products and services next year, 76% are still setting their pay policies for the spring pay negotiations in 2025.

Asked what policies Prime Minister Fumio Kishida’s government should pursue, 35% of respondents said they should address the low birth rate and an aging population. By comparison, 34% said they should address the weakening yen and soaring prices.

Japan was the most frequently cited country or region where companies intend to focus their operations, capital investment and R&D spending based on economic security (58%), followed by North America (35%) and Southeast Asia (32%).

Meanwhile, only 6% of respondents expressed a willingness to give China priority.

Of the respondents, 10% intend to expand their operations in China, 9% are considering scaling back their business activities, and 40% plan to maintain their current operations in the country.

According to Kyodo News, the survey was conducted from mid-July to early August. The results do not accurately reflect recent, turbulent moves in stock and currency markets, which have been affected by an additional interest rate hike by the Bank of Japan and growing concerns about the U.S. economy.