4 minute read 6 May 2020
An investor reacts as he monitors the share index in a stock market gallery

Japanese companies expect opportunities to create value through M&A

By Vincent Smith

EY Asia-Pacific Strategy and Transactions Deputy Leader

Experienced executive management, and corporate restructuring professional. Champion for diversity and inclusiveness in the workforce.

4 minute read 6 May 2020

Japanese executives expect a slow economic recovery, but M&A intentions remain strong in the long term.

Business leaders in Asia-Pacific, including Japan, are focusing on navigating the immediate impact of COVID-19 on supply chains, revenue and profitability while reconfiguring capital allocation and M&A plans for the post-crisis world. According to the latest EY Global Capital Confidence Barometer (pdf), which surveyed more than 900 Asia-Pacific C-suite executives (113 from Japan) between 4 February and 26 March 2020, the vast majority (96%) of Japanese executives expect COVID-19 to have a severe impact on the global economy. Companies expect to be particularly affected by supply chain disruptions and declining consumption.

Asia-Pacific respondents appear more pessimistic than global respondents (73%). However, they are relatively less concerned about their local economy. That said, more than half (58%) of Asia-Pacific respondents and 70% of Japanese respondents say COVID-19 will severely impact the local economy.

From a sector perspective, almost all global and Asia-Pacific respondents report that COVID-19 will cause a decline in profitability. Further, half of Japanese respondents expect a longer period of slower economic recovery that will extend into 2021. This is a significant shift from a year ago when 93% of Japanese respondents were positive about economic growth. In our current survey, positive sentiment plunged to 23% in early February, worsening to 13% for respondents surveyed after 19 February.

In response to the crisis, executives are reviewing their operating models. The increasing shutdown of activity in many parts of the world has exposed vulnerabilities in many companies’ supply chains. Two-thirds of Asia-Pacific companies (67%) and three-quarters of Japanese companies (74%) are taking steps to change their current setup.

At the same time, governments around the world are proactively offering stimulus packages for their countries to help them weather the impact of COVID-19. In Asia-Pacific, including Japan, governments are providing public welfare and business support to strengthen local economies.

Supply chain changes


of Japanese respondents are taking steps to change their current supply chain setup.

Preparing for what comes next is key

Despite boardrooms focusing on an unprecedented global public health emergency, executives are also planning their future beyond the crisis.

While executives are dealing with the immediate impact of the crisis, they still need to reassess their outlook for growth and consider the future “new normal” for businesses. As countries in Asia-Pacific, led by China, East Asia and Southeast Asia, are gradually moving toward stabilization, companies will undergo large-scale transformations in many sectors, as companies adopt agility, flexibility and resilience into their business strategies. This is also likely to apply to Japan, albeit Japan is at an earlier stage in dealing with the impact of COVID-19.

Already, 74% of Japanese companies are taking steps to change supply chains and address digital transformation (28%), speed of automation (50%) and management of the workforce (50%). Pre-crisis, transformation was high on the corporate agenda, with three-quarters of Japanese companies (76%) saying they already had major transformation initiatives underway, triggered as a result of pressure on revenue and profitability goals. In the current COVID-19 environment, the urge for transformation and reshaping of business portfolios will be stronger than ever.

Japanese companies have been focused on adapting their business models in response to global trade tensions, and this is now further accelerated by the COVID-19 crisis.

Companies are not expecting COVID-19 as a one-off event. Most Japanese executives are expecting regular disruption to become the new normal, and business strategies centered around sustainability will be the top priority. The unwelcome and unexpected emergence of COVID-19 will further cement transformational strategies in the boardroom.

Post-crisis recovery points to M&A

With many companies assuming a recovery in the medium-term, 57% of Japan respondents will actively pursue M&A in the next 12-24 months. Eighty percent of Japanese respondents are expecting to see increasing competition for assets in the next 12-24 months, with 67% expecting the competition to come from private capital, including private equity, which has record-high funds available for investment.

M&A intentions


of Japanese respondents expect to actively pursue M&A in the next 12-24 months.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Vincent Smith

EY Asia-Pacific Strategy and Transactions Deputy Leader

Experienced executive management, and corporate restructuring professional. Champion for diversity and inclusiveness in the workforce.