Japanese companies struggling with higher costs amid Ukraine war and lingering COVID fallout

Soaring prices for resources and raw materials amid Russia’s invasion of Ukraine is putting increasing pressure on Japanese companies to raise the prices of their products and services at a time when many are still fighting against the consequences of the COVID-19 pandemic.

The Bank of Japan tank March Quarterly Survey showed on Friday that business sentiment among both large manufacturers and large non-manufacturers had deteriorated for the first time in seven quarters.

Ginza Cozy Corner Co. was one of the businesses affected, raising prices on brownies and some other items on Friday.

β€œIt was a difficult decision,” said an official with the bakery operator. “Corporate efforts (to reduce costs) are reaching the limit.”

The price increases came after the company found it impossible to cushion the impact of higher prices for raw materials, such as flour, dairy and sugar, by taking cost-cutting measures, such as reducing of item alignment.

On Friday, the central government raised prices for imported wheat it sells to domestic wholesalers by 17%.

Bracing for further rises in grain prices as well as rising domestic prices from the weakening yen, the Ginza Cozy Corner official was not optimistic about a quick turnaround.

“We cannot rule out a second round of price increases to move (higher costs),” the official said.

In the March tankan, business confidence among large non-manufacturing companies on rising acquisition costs hit the highest level since the September 2008 survey released on the heels of the collapse of US investment bank Lehman Brothers, which triggered the global financial crisis that year.

Miki Watanabe, chairman and president of the major restaurant chain Watami Co., noted that the Russian invasion of Ukraine has also affected seafood procurement.

“Sharp price increases are sure to come,” due in part to the yen’s weakness, Watanabe warned.

Automakers, whose business sentiment had already deteriorated amid supply bottlenecks caused by semiconductor shortages, are struggling with higher resource prices.

Resource prices are rising “at an unprecedented rate,” a Toyota Motor Corp official said.

“We want to offset the increases (in resource acquisition costs) by reducing other costs, but the size of the increases is too large,” a Honda Motor Co official said.

People’s expectations that the pandemic was coming to an end had been boosted by the country’s progress on COVID-19 vaccines. This, however, was rapidly reduced when the highly transmissible omicron variant of the virus began to spread late last year.

In surveys conducted by Teikoku Databank Ltd. in January and February, more than 70% of companies surveyed said they expected the COVID crisis to have a negative effect on their business performance.

The share of such companies exceeding 70% for two months in a row was the first since August-September last, when the country was battling a fifth wave of infections.

J. Front Retailing Co. faced tough business conditions in January and February as the number of visitors to its department stores plummeted due to the government’s COVID-19 quasi-emergency measures, a public relations official with the company said. company.

After the quasi-emergency measures were fully lifted on March 22, there have been hopes of a recovery in private spending.

“Consumer appetite is improving,” said another source in the department store industry.

Meanwhile, Natsuko Kimura, retail director for Japan at major travel booking website Expedia, said there are signs of a recovery in inbound tourists as Japan eases its COVID-19 border controls in stages.

However, the Japanese and foreign economies are overshadowed by many uncertainties stemming from the direct and indirect effects of the pandemic and the conflict in Ukraine.

In Shanghai, de facto lockdown measures were imposed late last month due to a resurgence in COVID-19 cases.

If the war in Ukraine drags on, companies’ appetite for capital investment may deteriorate, said Yoshiharu Inaba, director of the Japan Machine Tool Builders Association.

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