Raw Japan

For a company to be losing a lot of money is hardly surprising these days, but I was shocked last week when Hitachi said it would lose 700 billion yen this year, the biggest loss ever by a Japanese manufacturer.

Investors were also shocked, sending shares down 17 pecent the next trading day, wiping out $1.9 billion in market value.

The loss forecast, reaffirmed Tuesday, underscores how quickly the financial crisis is spreading from the banking sector to every corner of the world’s No.2 economy.

For investors watching Japan, the question is whether Hitachi represents the worst or the start of worse things to come. The answer lies in how soon companies restructure and shrink costs to match the new reality.

 The key differences between this downturn and 2001-2002 (when Hitachi lost $5 billion) after the collapse of the IT bubble are: Overall revenues are declining (they still rose in 2001 and 2002 on an aggregate basis); this slump is much wider and includes the all-important auto sector; and, the yen has surged.

Daiwa Institute of Research estimates the pretax recurring profit of 300 big non-financial companies will fall 12 percent in the next business year from April, after a 43 percent slide this year. Revenues are set to slide for two straight years.

DIR analyst Masami Hamaguchi told me it’s back to the future:

“Companies really came out and cut costs aggressively after the IT bubble, but revenues are falling and conditions are even tougher now. They’ll have to get into the restructuring mode all over again.”