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Business trends

Japan Inc. casualty of US-China trade war in April-June quarter

Corporations see profit decreases for third straight period as bottom lines drop 14%

Corporate Japan is on track to record a decline in earnings for the second straight fiscal year.   © Reuters

TOKYO -- The aggregate net profit among Japanese corporations decreased for the third quarter in a row, Nikkei has found, indicating the lasting and far-reaching effects of the U.S.-China trade war on the business community.

The bottom line dropped 14% on the year for the April-June quarter among 1,243 listed companies that reported results by Thursday. Earnings at 56% of the businesses went south, the highest level in the post-economic crisis era.

The black ink is projected to shrink 4% for the full fiscal year, marking the second straight losing year. The main reason for the fallout is the global economic slowdown, which has impacted the automotive and machinery industries in particular.

Nissan Motor's profit plummeted 94% in the April-June quarter. The company's global factory utilization rate dipped below 70% due to lagging sales. The problem was especially pronounced at plants in emerging nations that received capacity upgrades.

The profit at Nidec, the leader in precision motors, plunged by a large margin due to lackluster demand for industrial and consumer electronic motors.

Makers of machine tools and factory automation equipment received a blow from Chinese enterprises that truncated capital spending. Fanuc's earnings shrunk by half in the recently ended quarter, and the factory robot company downgraded its full-year outlook.

Not only is the manufacturing sector being squeezed by global economic pressures, a cloud has formed over the nonmanufacturing industry as well. Eight out of 15 nonmanufacturing sectors saw overall net profits go down. Power, telecommunications and gas were among the only industries to buck the trend.

Undermining finances among nonmanufacturers are rising labor and material costs. SG Holdings, the parent of the courier company Sagawa Express, experienced a large jump in expenses tied to both internal labor and outside contractors.

Industry leader Yamato Holdings was also crushed by growing labor costs in the April-June quarter. Nissin Foods Holdings was weighed down by raw material costs and the expense of delivering freight to stores.

On the other hand, members of the pharmaceutical industry, such as Daiichi Sankyo, did well in the last quarter since they were less exposed to the trade war. The Nomura Research Institute reported a large bump in earnings thanks to its IT systems development business.

For this fiscal year, the overall net profit margin is forecast to drop to 4.65%, a level not seen since fiscal 2016 due to rising revenue and lower income. What will make or break the full-year performance will be the exchange rate.

Listed companies foresee a rate averaging about 109 yen per dollar, which is considerably weaker than the current figure of about 106 yen. For 300 companies with large market values, the pretax profit would go down by 1.44% this fiscal year if the Japanese currency appreciates 4 yen from 109, Nomura Securities estimates.

Nikkei's study looked at nonfinancial, non-startup companies that close their books in March. The corporations reviewed represent about 90% of the businesses in that class based on market capitalization.

Although companies tend to be conservative with their early projections, the rate of progress in hitting the target is lagging. For the first quarter ended June, net profit on average was 24.6% toward achieving the yearlong forecast. The progression stood 7 points higher at the same point last year, indicating the risk of downward revisions.

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