Japan: Cautious 2025 Fiscal Year Earnings Plan
2025-04-03
■ The Bank of Japan’s March 2025 Tankan Survey confirms the strong performance of large enterprises and the continued presence of cost-push inflation
■ Due to rising costs and uncertainty in the business environment, cautious earnings plans are presented for the 2025 fiscal year
In the Bank of Japan’s recently released Tankan Survey (March 2025), the Business Condition DI (recent) for large enterprises in the manufacturing sector (12, down 2 points from the previous survey) declined for the first time in four quarters, while for large enterprises in the non-manufacturing sector (35, up 2 points from the previous survey), it reached its highest level since the September 1991 survey. Looking ahead, both large manufacturing enterprises (12, unchanged from the recent period) and large non-manufacturing enterprises (28, down 7 points from the recent period) maintain high levels. In the manufacturing sector, conditions in some material industries such as textiles, petroleum and coal products, and steel have worsened significantly, with the effects of the U.S. tariff hikes being observed. Even in the processing industries, which had recently seen favorable conditions, such as the automotive sector, a deterioration in future business conditions is expected, suggesting that negative impacts may surface going forward. In the non-manufacturing sector, considering the tendency for the DI to decrease from recent to future in each survey, it can be judged that the overall business conditions remain favorable.
In the supply-demand, inventory, and price judgments, both large manufacturing and non-manufacturing enterprises saw increases in the sales price DI and purchasing price DI (both up – down) compared to the previous survey, which is noteworthy. Following non-manufacturing, manufacturing also saw the sales price DI shift from a decline to an increase, which had been observed from recent to future in the previous survey. Although no particular supply-demand tightness was observed in domestic products and services supply-demand DI (demand excess – supply excess), due to the rise in purchase prices leading to cost-push inflation, there is a high possibility that the prices of goods and services will continue to rise.
Looking at the new 2025 fiscal year plans (all figures are for full scale, all industries), the capital investment amount (including land investments, 0.1% increase year-on-year) has the lowest growth rate since 2020 in the March survey, indicating a clear shift towards caution in capital investment plans after two consecutive years of substantial increases. The sales and earnings plans are projected to see increased sales but decreased profits (sales: up 0.8% year-on-year, ordinary profits: down 1.4% year-on-year). The sales plan is in line with typical levels for March surveys, and although ordinary profits will increase in the second half of fiscal 2024, both the manufacturing and non-manufacturing sectors plan for a decrease in profits in the first half of fiscal 2025. The assumed exchange rate for USD/JPY in the 2025 fiscal year, a key premise for the business plan, is approximately 147.06 yen, about 3 yen stronger than the current rate, with only a slight change from the previous survey (146.88 yen). With rising raw material and labor costs causing a deterioration in profitability, and heightened uncertainty in the business environment due to factors such as U.S. tariff policies, it is reflected that businesses will face stronger headwinds in 2025 than in the previous year, leading to cautious earnings and capital investment plans.
■ Due to rising costs and uncertainty in the business environment, cautious earnings plans are presented for the 2025 fiscal year
In the Bank of Japan’s recently released Tankan Survey (March 2025), the Business Condition DI (recent) for large enterprises in the manufacturing sector (12, down 2 points from the previous survey) declined for the first time in four quarters, while for large enterprises in the non-manufacturing sector (35, up 2 points from the previous survey), it reached its highest level since the September 1991 survey. Looking ahead, both large manufacturing enterprises (12, unchanged from the recent period) and large non-manufacturing enterprises (28, down 7 points from the recent period) maintain high levels. In the manufacturing sector, conditions in some material industries such as textiles, petroleum and coal products, and steel have worsened significantly, with the effects of the U.S. tariff hikes being observed. Even in the processing industries, which had recently seen favorable conditions, such as the automotive sector, a deterioration in future business conditions is expected, suggesting that negative impacts may surface going forward. In the non-manufacturing sector, considering the tendency for the DI to decrease from recent to future in each survey, it can be judged that the overall business conditions remain favorable.
In the supply-demand, inventory, and price judgments, both large manufacturing and non-manufacturing enterprises saw increases in the sales price DI and purchasing price DI (both up – down) compared to the previous survey, which is noteworthy. Following non-manufacturing, manufacturing also saw the sales price DI shift from a decline to an increase, which had been observed from recent to future in the previous survey. Although no particular supply-demand tightness was observed in domestic products and services supply-demand DI (demand excess – supply excess), due to the rise in purchase prices leading to cost-push inflation, there is a high possibility that the prices of goods and services will continue to rise.
Looking at the new 2025 fiscal year plans (all figures are for full scale, all industries), the capital investment amount (including land investments, 0.1% increase year-on-year) has the lowest growth rate since 2020 in the March survey, indicating a clear shift towards caution in capital investment plans after two consecutive years of substantial increases. The sales and earnings plans are projected to see increased sales but decreased profits (sales: up 0.8% year-on-year, ordinary profits: down 1.4% year-on-year). The sales plan is in line with typical levels for March surveys, and although ordinary profits will increase in the second half of fiscal 2024, both the manufacturing and non-manufacturing sectors plan for a decrease in profits in the first half of fiscal 2025. The assumed exchange rate for USD/JPY in the 2025 fiscal year, a key premise for the business plan, is approximately 147.06 yen, about 3 yen stronger than the current rate, with only a slight change from the previous survey (146.88 yen). With rising raw material and labor costs causing a deterioration in profitability, and heightened uncertainty in the business environment due to factors such as U.S. tariff policies, it is reflected that businesses will face stronger headwinds in 2025 than in the previous year, leading to cautious earnings and capital investment plans.