To date, the worldwide rise in the
price of materials has been offset by the strengthening of the yen
against foreign currencies and has had little direct negative impact
on the Japanese economy. However, against the backdrop of a rise in
the number of inquiries for materials from China, upward pressure
has come to bear on the prices of domestic goods. Looking to the future,
if the Chinese economy continues to grow and the yen weakens once
more, it is likely that the upward pressure of materials prices will
strengthen in Japan, too.
If a rise in the price of materials is passed on to the price of final
goods, the burden falls on household finances; if the rise is not
passed on, the burden falls on corporate finances. In recent months,
the price of input goods has continued to rise but, owing to the persistence
of the supply-demand gap, the price of output goods has failed to
escape its weakening trend. In the short term, as the supply-demand
gap is likely to remain substantial, it is highly probable that the
rise in the price of materials will continue to exert pressure on
the profits of the corporate sector.
The downward pressure on ordinary profits in the manufacturing sector
exerted by rise in the price of materials is estimated as being of
the order of \5 trillion. In 1999-2000, a large proportion of the
rise in input prices was due to the rise in the price of crude oil.
This time, the price of a wide range of materials has risen and is
expected to exert downward pressure on the profits of a great number
of manufacturing companies. The rise in the price of iron and steel
is expected to have a particularly strong impact. Note should also
be taken of the sharp rise in the price of rare metals, the "vitamin
pills of industry".
However, because it will largely be offset by sales growth as the
economy recovers, and because greater profitability due to improved
productivity will enhance the ability of the economy to absorb it,
there is little danger that the impact on corporate activity in general
will trigger a deceleration of the economy. The negative impact on
capital investment is also likely to be slight given that cashflow
is abundant and that materials makers are likely to step up their
capital investment. |