TOKYO -- Driven by a robust global economy and weaker yen, Japanese companies that derive large portions of their earnings from foreign demand are expected to deliver strong results in the April-December period.
For businesses that rely on the domestic market, however, the outlook might not be so rosy.
Industrial robot makers are riding high on the back of strong global demand. Profits at Yaskawa Electric, which is due to release earnings on Tuesday, and Fanuc, which is scheduled for Friday, are expected to increase significantly due to strong sales in China resulting from rising labor costs.
The average of analyst forecasts for Fanuc's net profit for this fiscal year ending in March is 168.7 billion yen ($1.52 billion), surpassing the company's forecast of 164.9 billion yen. The company has raised its full-year earnings forecast every quarter this fiscal year, with the focus now on whether it will do it again.
Semiconductor demand from data centers and others is rising rapidly. Shin-Etsu Chemical is producing wafers at full capacity. With profitability improving sharply thanks to price hikes, the company's net profit is poised to hit a record high for the first time in 10 years this fiscal year. Shin-Etsu could raise its full-year earnings outlook when it announces April-December results on Friday.
The electric vehicle sector is also showing promise. The QUICK consensus survey forecasts that operating profit at automotive motor maker Nidec will jump about 20% on the year in the April-December period.
"Expectations for foreign demand-driven companies are strong as they benefit from stronger overseas demand and the weaker yen," said Masahiro Suzuki, senior quantitative analyst at Daiwa Securities.
Rising crude oil prices and resources are likely to push up earnings at oil distributors and trading houses as well.
Crude prices have been going up due to coordinated production cuts by the Organization of the Petroleum Exporting Countries, among other factors. The price of benchmark Dubai crude oil hit a near three-year high at around $67 per barrel last week.
Crude is trending higher than oil distributors' projections, and profit on valuation of oil inventories and an increase in revenues from oil fields in which oil distributors have a stake are likely to push up profits.
JXTG Holdings estimates that crude prices will hover at around $50 per barrel for the six months through March. If crude oil prices exceed projections by a dollar, it is expected to increase the Japanese oil group's operating profit by 10 billion yen.
Average crude oil prices have been about $10 higher than the company's projections. If crude prices remain at the current level, the company's operating profit will rise 100 billion yen from the current projection of 400 billion yen.
Climbing prices of resources, such as nonferrous metals and coal, are likely to lift profits at general trading companies and nonferrous metals manufacturers, including Mitsui & Co. and Sumitomo Metal Mining.
Meanwhile, rising labor costs are weighing on domestic demand-led companies. Logistics giant Yamato Holdings decided to hike parcel delivery rates to better cope with soaring costs resulting from a labor shortage and more online shopping. Attention is focused on how much the Japanese courier company can improve profitability.
Analyst forecasts also show that foreign demand-led companies are outperforming domestic demand-led companies. According to Daiwa Securities' "revision index," earnings upgrades exceed downgrades in analysts' fiscal 2017 projections for foreign demand-driven companies, while the opposite is true for domestic demand-driven ones.
As many as 370 companies are expected to release April-December results on Feb. 9.