Japanese companies’ ordinary profit nearly tripled over the past 30 years, while revenue remained largely flat. Against a backdrop of prolonged deflation, companies continued to prioritize cost cutting, and this article explains why and examines signs of a shift.
From 1990 to 2025, Japanese companies’ ordinary profit nearly tripled, while revenue remained largely flat until around 2022. This may appear to contradict the conventional view that the economy is supposed to grow, but the explanation is that in a deflationary environment, continually falling prices make it difficult to increase sales.
To prioritize short-term earnings improvement, companies have kept labor costs, R&D expenses and capital investment under control. While such cost cutting produces immediate results, it has also been cited as a factor weakening long-term growth potential.
This strategy continued for nearly 30 years. In a deflationary environment, conditions were not conducive to increasing sales, and it was considered rational to adopt a defensive management approach in order to secure profits.
The article interprets this as the beginning of a shift among Japanese companies. As conditions for increasing sales begin to improve, attention is turning to developments ahead.