On April 27, Fumio Kishida, the Prime Minister of Japan, posted on X (formerly Twitter) that “Our economy is now seeing a light of hope for the first time in 30 years.” Has the “hopeful situation” returned to the management of small and medium-sized enterprises (SMEs)? According to the data provided by Credit Guarantee Corporation of Tokyo, the number of payments in subrogation in FY2023 was 147.3% of the previous fiscal year, 142.9% of the same in terms of value, and changes in conditions such as extensions of warranty periods were 110.2% of the same. The number of payments in subrogation is rising at a pace of 1.5 times increase compared to the previous fiscal year nationwide, indicating that SMEs are experiencing severe financial difficulties. (The number and amount of payments in subrogation made by the Japan Federation of Credit Guarantee Corporations during the period between April 2023 and February 2024 were 149% and 144% of the previous period, respectively.)

According to the “Survey of Monthly Business Conditions of Small and Medium Enterprises” released by the National Federation of Small Business Associations on April 25, the three main indicators: business conditions, sales, and revenues, all showed a downward trend in March 2024. Not only the current situation but also the future outlook seems challenging. According to the April 2024 survey results of “Chamber of Commerce and Industry LOBO (Quick Survey System of Local Business Outlook)” launched by The Japan Chamber of Commerce and Industry (JCCI), the prospect for the period between May and July 2024 is negative in all industries in terms of both business conditions and financial conditions. (The former is -12.7 points on average, while the latter is -10.8 points on average.)

Pass-through from rising prices of imported materials, transportation costs, and energy costs, as well as increasing labor expenses due to wage hikes, to transaction prices will be crucial. The government positions this as an “opportunity to overcome deflation” and requests that the business community accept the cost pass-through. However, only 33.9% of SMEs have achieved “40% or more pass-through” from increased labor costs, while 25.6% have achieved “zero,” or in other words, 25.6% have not been able to achieve cost pass-through at all. The above-mentioned JCCI’s survey states, "Prime contractors and first-tier subcontractors conduct cost pass-through, while the situation seems totally different in the case of second-tier and lower-tier subcontractors.”

The Small and Medium Enterprise Agency has reviewed the “Small and Medium Enterprise Business Restructuring Promotion Fund and Business Restructuring Subsidies” with the statement that “The role of the measure to prevent the spread of COVID-19 infections has ended.” It is acceptable that the agency supports SMEs’ responses to structural changes by abolishing special measures such as the start-in-advance system, strengthening screening and monitoring, and simplifying the support framework that had been segmented into smaller categories. However, funds and subsidies cannot be used for business recovery. The government’s paying lip service saying “The future of the Japanese economy will be bright.” is not what we want. I would like the government to realize the actual situation of SMEs and take economic measures that focus on implementing practices of fair trade throughout the supply chain and stimulating domestic demand.

This Week’s Focus, May 10

Takashi Mizukoshi, the President