Business exodus from Russia has limited impact on Japanese economy
Businesses around the world have fled Russia as the country faces mounting sanctions over its continued invasion of Ukraine, raising concerns about the ramifications the crisis could have on the global economy.
Major Japanese manufacturers have added their names to the ever-growing list of companies shutting down operations in Russia, but economists note that the direct negative impact on Japanese companies is likely to be limited, even if supply chain problems resource supply could cause lasting headaches.
Photo taken on March 1, 2022 shows the flag of Toyota Motor Corp. at Toyota in Aichi Prefecture, central Japan. (Kyodo)
“The ratio of business that Japanese companies do in Russia (to their overall overseas operations) remains quite low,” said Manabu Shimoyashiro, senior director of the overseas research department at the Institute. Japan External Trade Organization. Since Russia is “not a major market” for them, the companies’ withdrawal “should not significantly affect” the Japanese economy.
A total of 347 Japanese companies operated in Russia in February, 45% of which were automakers and other manufacturers, according to credit research firm Teikoku Databank Ltd.
Among major automakers, Toyota suspended its St. Petersburg plant earlier this month due to supply chain disruptions and ordered its Japanese staff to return home.
Nissan Motor Co. and Mitsubishi Motors Corp., both of which have local factories in Russia, also evacuated staff, joining some 330 global companies that have so far pulled out of Russia in protest, according to the Yale School. of Management.
“Manufacturers are finding it increasingly difficult to keep operating in Russia as the Ukraine crisis approaches a tipping point,” said Koichi Fujishiro, senior economist at the Dai-ichi Life Research Institute.
“However, the withdrawal from Russia itself should not lead to downward earnings revisions, with the focus instead on the impact of high crude oil prices,” he added.
Indeed, before recently halting vehicle shipments to Russia, Honda Motor Co. had long planned to halt exports to the country in fiscal 2022 due to a continued decline in sales.
The exodus has found support from Keidanren, Japan’s biggest business lobby. Masakazu Tokura, who heads the group, told a press conference on March 7 that it was unjustifiable to work enthusiastically with a country that has “forcefully disrupted international affairs”.
Japan has joined other countries in freezing assets and debarring seven Russian banks from the SWIFT international payments network to disrupt trade and money transfers.
But “sanctions are a double-edged sword – those who apply them will also be harmed one way or another,” Fujishiro said.
Crude oil prices have hit record highs in more than a decade as countries ban oil imports from Russia, a major producer. On the Tokyo Commodity Exchange on March 7, Middle Eastern crude oil futures briefly hit 78,820 yen per kilolitre, their highest level since late August 2008.
Precious metals have also been trending higher in recent weeks, with materials such as palladium, which is used as a catalytic converter in cars, and copper hitting record highs.
“A shortage of semiconductors is already weighing on automakers, but production could be further hampered if the current situation leads to a collapse in the supply chain for metals such as platinum and palladium,” Fujishiro said. .
As the crisis deepens, some organizations predict a massive contraction in Russia’s economic growth, with the Institute of International Finance saying the country could see a double-digit decline this year.
Britain’s National Institute for Economic and Social Research said in a report earlier this month that global gross domestic product could decline by 1%, or $1 trillion, by 2023, while inflation could soar to 3 percentage points this year.
If the Russian economy contracts by 10%, its impact on Japanese GDP should be a relatively small downward pressure of around 0.15 percentage points, according to Shinichi Nishioka, senior researcher at the Japan Research Institute.
“Companies run reputational risk” rather than economic risk by continuing to operate in Russia, Shimoyashiro said.
Some also pointed to the potential need for government assistance in the event of a protracted crisis.
Japan Association of Business Leaders CEO Kengo Sakurada told a press conference on March 1 that the government will have to help businesses that could be directly affected if the crisis drags on, noting that it would be a matter of “stamina” up to the restrictions. have been lifted.
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