The latest earnings reports from Japanese corporations listed on the Tokyo Stock Exchange provide a running commentary on their predicament. Reflecting a drawn-out recession, both sales and profits plunged in the year to March 1999 (fiscal 1998). On average, sales in all industries except financial services shrank about 10 percent from fiscal 1997, due notably to sluggish consumer spending, and falling prices.
In a desperate effort to stop the hemorrhage, money-losing businesses cut payrolls and took other restructuring steps. However, unable to make up for shrinking sales, they suffered an average 20 percent decline in current profits, a bellwether of profit performance in a given term. This is the second consecutive year-on-year slump in pretax profits. The consolation, however, is that although the slide in sales is likely to continue through fiscal 1999, profits are expected to rise thanks to restructuring efforts.
Nevertheless, a profit rebound aided by restructuring -- which generally involves passive responses to the recession -- is likely to be short-lived. If earnings are to be improved on a sustainable basis, it is essential to go beyond downsizing and develop forward-looking strategies to open up new vistas in the Japanese economy.