Worryingly, according to a new report by Nikkei, Japan’s listed companies have fallen to a 46-year low. They have reported a 12% y-o-y net profit decline for the quarter between April and June. This economic slowdown marks the first decrease for this quarter since 2022. It should alarm us about the nation’s economy long-term resilience to increasing external competing pressures.
Climate-related disasters are just one reason cited in the report for this profit downslide. American tariffs on affected industries have hurt these industries, resulting in consistently poor performance in many of these industries. A strong yen has only exacerbated these pressures, undermining the competitiveness of Japanese exports.
The auto industry, once again, the backbone of Japan’s economy, faced an acute crisis during this time. Manufacturers indicated record low sales and profitability, blaming tariff effects and challenges with strong currency as their main challenges. The steel industry faced a crisis when demand for steel products plummeted overseas. This reality compounded the challenges that manufacturers were already experiencing.
Even with these pressures in their strategic industries, their domestic demand is still holding up surprisingly well. Consumers are really putting their money where their mouth is, they want to support local business. This support is providing a cushion against the outside onslaught of tariffs and currency devaluation. This resilience could further support a stable macroeconomic backdrop, including as elevated profits’ decline weighs on some sectors.
Analysts have cautioned that rising external tariffs and a strong yen will bite Japanese companies. This combination of factors likely will lead to a long transition period for them. Our businesses are feeling the squeeze from all sides. To mitigate the effects of heightened external pressures on their growing bottom line, they need to take up new tactics.