Toyota says it plans to spread the wealth to aid Japanese revival

[TOKYO] Toyota Motor Corp, which analysts estimate will earn more profit this fiscal year than all the other Japanese carmakers combined, could be ready to spread the wealth.

As Toyota raised its fiscal-year profit forecast to a record 2.13 trillion yen (US$18.1 billion), the manufacturing giant said it may ease up on its usual practice of squeezing suppliers to lower prices of auto parts. The idea: leave some gains to companies lower down the supply chain so they have the resources to boost wages.

"We are having discussions on price revisions right now and we are trying to escape from the deflationary environment in Japan," Toyota Managing Officer Takuo Sasaki told reporters Wednesday in Tokyo. "We hope this will lead to a virtuous cycle for the Japanese economy."

If implemented, Toyota's move would provide some of the momentum Prime Minister Shinzo Abe needs to overcome Japan Inc.'s apathy toward wage increases and help Asia's second- largest economy out of two decades of deflation. It'll also be payback for the stimulus and monetary easing that has weakened the yen and lined the pockets of exporters led by the auto industry.

Even after lifting its annual profit forecast for the second time in as many quarters, Toyota's projection is still short of the 2.16 trillion yen that analysts' estimate the company will earn for the year ending in March. Japan's seven other carmakers may report about 1.8 trillion yen in combined net income for the same period, according to data compiled by Bloomberg.

Japan's economy probably limped out of its fourth recession since 2008 last quarter, with a report on Jan. 30 showing industrial production eking out a gain in December after a slide the previous month.

For Japanese consumers, rising living costs and an increase in the sales tax last April led to prices outpacing their first base wage gain in eight years in 2014. So while average earnings climbed 0.8 per cent, pay adjusted for inflation fell 2.5 per cent last year, the labor ministry said Wednesday in Tokyo.

This trend is putting pressure on Japanese companies to pass on some of the gains from a weaker yen by boosting domestic wages and investment. Toyota and its labor unions are entering spring negotiations that are set to conclude in March and establish pay and bonuses for the upcoming fiscal year.

If Toyota abstains from demanding price cuts, its largest suppliers have said they would in turn skip asking for reductions from the smaller peers that provide them parts and raw materials, Managing Officer Koki Konishi told reporters.

"We understand we are at very important phase for the Japanese economy," Mr Konishi said. "We think it is important to have economic revitalization to penetrate second- and third-tier suppliers and for the whole Japanese economy to set a positive attitude."

WP