29 May 2020

Key points

  • Japan lifted a nationwide state of emergency on May 25.
  • Even with the state of emergency lifted, Japan’s food sector is expected to struggle until consumers are comfortable dining out again and tourists return. There may be flow-on effects for Australia’s premium food and beverage exporters.
  • Australia’s exports to Korea in the first four months this year were worth US$6.3 billion, driven by iron ore, copper, gas, grain, fresh fruit, chocolate, dairy spreads and wine.
  • An outbreak at a major e-commerce distribution centre in Korea has infected 82 of the 3,500 workers so far. There are concerns this number will continue to rise and may lead to the re-introduction of stringent social distancing measures.

Financial services

  • Japan – Japan’s megabanks expect double-digit profit declines for the current fiscal year, after reporting increased asset write-downs and loan loss provisions in their annual results for the year ending March 31.
  • Japan – Of the 76 regional banks that announced their financial results for the year ended 31 March 2020, 53 banks reported an average 20% decline in profits. In addition, 73 banks predict a further profit decline of around 20% for the current financial year. 
  • Japan – Mitsubishi UFJ Financial Group, Japan’s largest banking group, reported a 40% drop in net profit to ¥528 billion (A$7.5 billion) for the past fiscal year. It expects a similar net profit level for the current fiscal year, at ¥550 billion (A$7.9 billion). Sumitomo Mitsui Financial Group, the second largest banking group, expects a 43% drop in net profit to ¥400 billion (A$5.7 billion) for the current fiscal year ending March 2021.  Mizuho Financial Group, the third largest banking group, projects a 29% drop in net profit to ¥320 billion (A$4.6 billion) for the current financial year.  

Food service

  • Japan – According to Tokyo Shoko Research, 80 companies in the Japanese food service sector went bankrupt in April 2020. This is 29% higher than the same month in the previous year and the worst on record for the past 30 years. Almost 90% of these bankruptcies were small companies with limited capital. Even with the state of emergency lifted, the sector will continue to struggle until consumers are comfortable dining out again and tourists return to Japan. It may be some time before premium food products are in demand again.
  • Japan – Businesses such as diners, set-menu restaurants and hamburger chains that offer takeaway or home delivery have fared better during the lockdown than izakayas (small, casual bars). Focusing on family-friendly menus has helped achieve this success. Consumers are making family-sized purchases, which has led to a significant increase in the average spend per customer.
  • Korea – Beef and pork sales are at record levels as consumers continue to prepare meals at home and enjoy the flow-on benefits of the cash payment to every Korean household. However, the supply of these meats from the US has reduced: current volumes have fallen by 40% and prices have increased by up to 80%.

Advanced manufacturing

  • Japan – The global restrictions on air travel are having a major impact on the Japanese aerospace industry. Major Japanese manufacturer IHI Aerospace announced it would freeze more than 30% of its planned investment in research and development and equipment in fiscal 2020. The company plans to cut back on investment in its mainstay aero-engines and other businesses. Mitsubishi Heavy Industries has suspended operations at its main factory in Nagoya where wing parts are produced for Boeing. KHI and Subaru have also adjusted their production downwards for aerospace component exports.

Infrastructure

  • Japan – The country’s top three mobile carriers – NTT DOCOMO, KDDI and SoftBank Corp – launched 5G services in late March. The initial response has been muted by the COVID-19 crisis, which has resulted in cancelled promotional events, store closures and shortened operating hours. 
  • Japan – E-commerce group Rakuten is delaying the launch of its 5G service by three months, because its network verification process in India has been hampered by the nationwide lockdown in that country. The launch was originally scheduled for June.

Technology

  • Japan – The Startupbootcamp Scale Osaka program is recruiting again but will be a fully virtual program due to COVID-19 restrictions.
  • Japan – COVID-19 is having a major impact on startup operations. According to a Nikkei survey, 40% of 57 companies surveyed said they were concerned about business continuity, and 20% were concerned about a shortage of working capital in the next six months due to falling revenues and delays in raising funds from investors.  

Research and development

  • Japan – A Japan Management Association survey found 75% of chief technology officers have no or limited connections with overseas universities, research institutes and startups. This supports findings from other similar surveys that show Japanese companies are still experiencing teething problems in establishing and transitioning to open innovation platforms that use external partners for R&D.

Economic data

  • Korea – Australia’s exports to Korea in the first four months this year were worth US$6.3 billion, down by 2% compared to the same period last year. Australia’s exports remained relatively unaffected by COVID-19 largely due to the robust growth of iron one, copper and gas in the early part of the year, offsetting the drop in crude oil and coal. As the figure represents trends prior to the outbreak in mid-March, exports will continue to fall for at least for the next two months. Apart from raw materials and grain, fresh fruit, chocolate, dairy spreads and wine rose substantially during the period, reflecting the increased demand for Australian food and beverage.

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