The sovereign debt crisis in Europe, coupled with a slowing Chinese economy, has forced Japanese companies to cut back on earnings projections for the year through March.
Thirty-seven percent of the 469 companies listed on the Tokyo Stock Exchange’s First Section that announced interim financial results by Oct. 31 lowered sales forecasts, and 32 percent revised down net profit and loss estimates.
The figures were compiled by SMBC Nikko Securities Inc. The 469 firms covered account for 39.7 percent of all First Section companies, excluding financial institutions.
But the sovereignty dispute with China over the Senkaku Islands in the East China Sea could make it difficult for Japanese companies to achieve even the downgraded projections.
“The impact of worsened Japan-China relations has not been factored in at most companies,” said Keiichi Ito, who is in charge of the survey at SMBC Nikko Securities. “It will not be known at least until the latter half of the current business year.”
Of the 469 companies, 145 revised down their estimates for operating profits and losses, or results of core businesses.
The 469 firms are now forecasting a 9.1-percent increase in operating profits from the year ended March 2012, compared with a 15.5-percent growth initially projected by all First Section companies, excluding financial institutions.
Among manufacturers, the estimated growth sharply slowed from the initial 24.9 percent to 12.9 percent.
Exporters are particularly hard hit. Electronics manufacturers have slashed net profit projections by 87.8 percent.
Sharp Corp. said Nov. 1 it expects its worst net loss of 450 billion yen ($5.6 billion), or 200 billion yen more than its estimate in August. It blamed poor performances in its mainstay businesses, such as liquid crystal displays and solar cells.
The amount of loss will exceed the previous record of 376 billion the company just reported for the year ended March 2012.
Steelmakers have cut net profit forecasts by 78.5 percent, and automakers by 13.1 percent.
In the previous business year, Japanese companies suffered lackluster performances due to the Great East Japan Earthquake and tsunami and the yen’s appreciation.
Many companies had expected a V-shaped recovery on the back of expanding overseas economies, but that scenario is crumbling due to the prolonged European debt crisis and the sputtering Chinese economy.
Yasuhiro Ishimaru, senior researcher at the Bank of Tokyo-Mitsubishi UFJ, said the Japan-China relations could hold the key to Japanese corporate performances.
“The nominal growth rate of Japan’s gross domestic product could be cut by 0.4-0.5 percentage point over the coming six months if exports to China continue to stall,” he said. “In addition, domestic production would probably suffer negative effects.”
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