Cabinet Office, Government of Japan

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Annual Survey of Corporate Behavior(Summary)FY2008(April 22,2009)

Background and purpose of the survey

After hitting the bottom in January 2002, the Japanese economy had continued to recover supported by the fast growth of the world economy. During this period, corporate profits reached their highest point in mid-year of 2007 because exports to the US and emerging countries such as China were stable.

However, situations surrounding the corporate environment have gradually become more severe as demand slowed on account of the burst of the housing bubble in the US, and profits reduced due to the soaring prices of crude oil and materials. The corporate management environment has become quite severe in less than two years as global demand has rapidly dropped due to the financial crisis that intensified particularly in the last half of 2008.

This survey compiles survey results on what measures companies have taken to ensure profits in such a severe situation, what they expect the growth rate of the future Japanese economy and industrial demand to be, and what their views are on facility investment, employment, and wages, which may influence future economic trends.

Survey system

(1)Period of the research:February 2009.

(2)Survey items:

(i) Business environment and management policy

(ii) Corporate activities related to rising prices

(3)Coverage: corporations listed in the first and second sections of stock exchanges in Tokyo, Osaka and Nagoya (2,498 companies in total).

(4)Survey method: self-reporting mailing method using prescribed questionnaire.

(5)Number of companies that responded: 1,027(537 of manufacturing sector and 490 of non-manufacturing sector).

(6)Response rate: 41.1%.

Main findings of the survey

  1. The forecasts of real and nominal economic growth rates are both minus 1.5% for FY2009.

    The forecast of real economic growth rate is minus 1.5% for FY2009, 0.2% for the next three years (FY2009 to 2011) and 1.0% for the next five years (FY2009 to 2013). The growth rates for the next year (FY2009) and the next three years are the lowest since FY1985, and the growth rate for the next five years is the same as the survey of FY2002, which was the lowest since 1985.

    The forecast of the nominal economic growth rate is minus 1.5% for FY2009, 0.0% for the next three years and 0.8% for the next five years, all of which are the lowest since the FY2003 survey.

    In comparing the real growth rate and the nominal growth rate, the forecasts for FY2009 are the same, but for the next three years and the next five years, the nominal growth rates are below the real growth rates, so a slight fall in prices is expected.

    The industrial demand growth rate is minus 2.7% for FY2009, minus 0.2% for the next three years and 0.6% for the next five years, all of which are the lowest since the comparable survey in FY1985.

  1. The forecast of the exchange rate for the next year is 97.0 yen per dollar, and the break even point for export companies is 97.3 yen per dollar.

    The forecast of the exchange rate for the next year is 97.0 yen per dollar, which is the lower (yen depreciation) yen expected than the actual rate of the month right before the survey (January 2009, 90.4 yen per dollar), but the forecast has appreciated to below 100.0 yen per dollar, the first time since the start of the survey in FY1986.

    The break even for export companies is 97.3 yen per dollar, higher than the survey of the previous year (104.7 yen per dollar), and is moving toward a lower yen, in contrast to the previous year, compared to the exchange rate of the month immediately preceding the survey. In addition, it is almost the same as the latest month (March 2009, 97.9 yen per dollar).

  1. The average purchase price and the average sales price have both fallen.

    The average purchase price of the manufacturing industry is forecasted to fall by 1.2% for the next year (5.4% rise in the survey of the previous year), and the average sales price is forecasted to fall by 2.4% (1.8% rise in the survey of the previous year), the lowest forecast since the start of survey in FY2003. Therefore, the terms of trade, the comparison between the change of the average sales price and the average purchase price is expected to be worsening.

    The average purchase price of the non-manufacturing industry has fallen 1.2% for the next year, and the average sales price has fallen 2.1% for corporations and groups and 1.8% for individuals and consumers. Therefore, the terms of trade are worsening.

  1. The prospect of capital investment for the next three years is minus 1.2%.

    The prospect for capital investment for the next three years is minus 1.2%, the first negative figure since the start of the survey in FY1987.

  1. The prospect of the number of employees for the next three years is declining.

    The prospect for the number of employees for the next three years is minus 0.2%, with falling into negative figures for industry as a whole and the manufacturing industry but a positive figure for the non-manufacturing industry.

  1. The rate of overseas production is almost unchanged.

    The rate of companies in the manufacturing industry conducting overseas production is 67.3% in the results for FY2007 and 67.1% for the estimate of FY2008, but slightly decreases to 66.1% for FY2013 prospect.

    The rate of overseas production is almost unchanged at 17.3% in the results for FY2007 and 17.5% for the estimate of FY2008. However, the rate is expected to rise slightly to 19.3% for FY2013 prospect.

    The rate of reimports is expected to decline, standing at 25.2% in the results for FY2007, 24.6% for the estimate for FY2008 and 23.8% for FY2013 prospect.

  1. Many companies estimate the business conditions as largely "bad" for FY2008 and "worse" for FY2009.

    Looking at the business conditions of companies (the rate of the number of companies who answer "good" minus the rate of the number of companies who answer "bad"), the rate has greatly dropped to minus 63.7% from 1.8% in the previous year, the lowest since the comparable survey in FY2004. The rate for FY2009 is expected to be minus 47.1%, with more companies expecting "worse" conditions. In every industry, the companies expecting "bad" business conditions currently dominate, largely deteriorated from the survey of the previous year. For FY2009, many companies in both the manufacturing industry and the non-manufacturing industry are expecting "worse" conditions.

  1. The rate of wage increase is expected to be smaller for FY2009.

    The rate of wage increase for your company is 1.25% for FY2008 and 0.52% for the estimate of FY2009, with the rate getting smaller, although it remains positive. Looking at the relationships between the current business conditions and the rate of wage increase for FY2009, 20.7% out of the companies that have replied "getting better" for the current business conditions, 36.3% out of those that have replied "unchanged" and 43.2% out of those that have replied "getting worse" expect 0% or below for the rate of wage increase for FY2009.The worse the company expectations get for the business situations, the more negative the forecast for the rate of wage increase gets.

  1. For Measures for ensuring profits in the rising prices and the economic slowdown, popular answers are "streamlining of production processes and work processes" and "review of suppliers for raw materials, fuels and products."

    For measures for ensuring profits in given rising prices and the economic slowdown (multiple answers acceptable), "streamlining of production processes and work processes" is the most common (67.4%) followed by "review of suppliers for raw materials, fuels, and products" (60.5%). The most important (the number 1 reply) is "streamlining of production processes and work processes" (26.9%) followed by "sales price increase" (21.9%) and "reduced capital investment" (13.9%).

    "Reduced personnel costs" is the most common measure taken by the companies shown in the survey of corporate behavior in the past (75.7% for FY2002 and 78.2% for FY2003) in situations where the falling prices is one of the factors pressuring corporate profits. This cannot be compared to the current situation, since the economic conditions are different, but "reduced personnel costs" was the most common measure of nearly 80% in those years whereas "employment adjustment" is currently 45.9%. Employment has not been affected as much compared to the past, but the worsening economic situation may further affect employment in the future with estimates of a reduced number of employees for the next three years.

    In terms of relationships between business conditions and measures to ensure profits, companies that answered "bad" for the business conditions indicate "streamlining of production processes and work processes" (27.5%), "sales price increases" (20.0%), "reduced capital investment" (15.8%) and "employment adjustment" (10.7%), while the companies that answered "good" for the business conditions indicate "sales price increase" (30.6%) and "streamlining of production processes and work processes" (26.4%). By comparison, the companies that answered "bad" tend to conduct "reduced capital investment" and "employment adjustment," and the companies that answered "good" tend to conduct "sales price increases."

  1. The rate of "overtime work reduction" is the highest and the rate of "dismissal" is the lowest in the companies that have conducted the employment adjustment.

    For the method of "employment adjustment" as a measure to ensure profits mentioned above, "overtime work reduction" is the most common for both regular employees (85.0%) and non-regular employees (65.7%), followed by "reduced hiring" (50.1%), "wage adjustment" (40.7%), "other" (8.0%) and "dismissal" (4.7%) for regular employees and "reduced hiring" (61.2%), "dismissal" (29.7%) "reduced wages" (17.3%) and "other" (12.4%) for non-regular employees. The rate of companies conducting "dismissal" is higher for non-regular employees than for regular employees.

    In terms of the relationship between business conditions and employment adjustment as a measure to ensure profits, the ratio of companies that answered "bad" for business conditions is highest in "overwork reduction" (44.0%) for the regular employees followed by "reduced hiring" (25.8%), "wage adjustment" (22.8%), "other" (4.6%) and "dismissal" (2.7%). On the other hand, the rate of companies that answered "good" for the business conditions is the highest in "overwork reduction" (57.1%), "reduced hiring" (35.7%) and "wage adjustment" (7.1%). By comparison, the rate of "wage adjustment" and "dismissal" is higher in companies that answered "bad" for the business conditions.

  1. The ratio of companies that answered over 0% but less than 10% for the rise of the purchase price as a whole is about 40% in the rising of the prices including raw material prices.

    In terms of how much the purchase price as a whole has risen from two years ago in the rising of the prices including crude oil and materials, the ratio of the companies that answered "over 0% but less than 10%" for the rise of the purchase price is 40.7%, and the rate of the companies that answered "over 10% but less than 20%" for the rise of the purchase price is 22.2%. In addition, with regard to how much the rise of the purchase price is transferred to the sales prices of major products and services by sales routes (domestic or overseas), "over 0% but less than 10%" is the most common for both domestic and overseas (30.9% for domestic and 31.6% for overseas) followed by "0%" (19.8% for domestic and 23.9% for overseas). In addition, the ratio of companies that answered "100%" for the ratio of transfer is 4.2% for domestic and 3.2% for overseas.

  1. The ratio of companies that have "maintained" the price setting of the major products overseas in the yen appreciation is about 60%.

    With regard to the method of overseas price setting (in local currencies) of the major products due to yen appreciation, the ratio of the companies that have "maintained" prices are about 60% for all industries, the manufacturing industry (basic material industry, processing-type industry and other manufacturing industries), and the non-manufacturing industry. The ratio of the companies that have "increased" the price is about 30%, and the ratio of the companies that have "reduced" the price is about 7%.

Contact

Questions about this survey can be made to HERE

Cabinet Office, Government of JapanEconomic and Social Research Institute
1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.