Photo/Illutration Company representatives distribute earnings reports on May 12 at the Tokyo Stock Exchange press club. (Kyosuke Yamamoto)

Japanese companies are reporting hefty profits for the fiscal year that ended in March.

Many companies have racked up record profits thanks to recovery from the downturn caused by the COVID-19 pandemic and a weaker yen.

To pump the money they have earned back into the economy, these businesses should use the swollen earnings to raise wages and pay more for goods and services provided by subcontractors, in addition to ramping up dividend payouts to shareholders.

Profits at many major Japanese manufacturers including automakers and electronics companies were pushed up by increased exports and expansion of the yen values of revenues from overseas operations due to the currency’s decline against the dollar and other major currencies.

Toyota Motor Corp. and Hitachi Ltd. are among the Japanese manufacturers that have posted record profits for the fiscal year through March. Toyota’s operating profit for the fiscal year totaled nearly 3 trillion yen ($23.21 billion) as the yen’s fall lifted the auto giant’s bottom line by some 610 billion yen.

In the non-manufacturing sector, a raft of big trading houses and oil wholesalers have seen their profits surge to levels well above the past records. Soaring prices of oil and other natural resources turned out to be a big boon to their profitability.

Leading shipping companies also earned record-breaking profits as a bounce-back in demand for maritime transport drove up shipping fees.

Companies in some sectors, such as the electric power and construction industries, on the other hand, suffered a blow to their bottom lines from higher costs due to spikes in the prices of natural resources and materials.

The combined profits of all listed companies, though, are believed to have grown sharply in the fiscal year and projected to remain on an upward trajectory in the year through March 2023.

Massive profits have prompted many companies to boost dividends and expand purchases of their own shares. Share buybacks are generally welcomed by shareholders because they work to bump up the share prices.

While listed companies and their shareholders are basking in strong profit growth, Japanese households are struggling to deal with rising financial burdens as higher import prices are spilling over into prices of food and daily necessities.

Consumer prices in Japan are forecast to rise by around 2 percent this year from last year. Inflation rates in this country are still much lower than those in the United States and Europe. If wage hikes fail to keep up with the pace of inflation, however, household income will decline in real terms.

According to Rengo (Japanese Trade Union Confederation), the nation’s largest labor organization, this year’s “shunto” spring wage negotiations led to an unimpressive 2.1-percent pay growth including a periodic increase in wages.

The growth rate has recovered to pre-pandemic levels but the wage hike excluding the annual raise was less than 1 percent, much slower than the pace of inflation in recent months. Cash-flush companies should return more of their profits to workers.

It is also important to recognize the need to support small and midsize companies providing goods and services for large businesses. These subcontractors are generally vulnerable to higher material costs.

Japanese companies need to use their increased profits for purposes that help promote positive economic cycles for the nation’s future, including investments in technologies and facilities to reduce carbon emissions.

The outlook of the world economy is murky. Prices of natural resources and materials could remain stuck at high levels for a long period, depending on how the situation in Ukraine turns out.

Higher prices of imported daily necessities will pose a downside risk for the Japanese economy as a whole. It is crucial to prevent the negative effects from being concentrated in households and a small number of companies.

Avoiding this situation requires effective efforts to ensure that higher corporate profits will benefit a wide range of businesses and consumers and help increase the resiliency of the entire Japanese economy.

Such efforts will also contribute to the sustainability of corporate profit growth.

--The Asahi Shimbun, May 17