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Economy

Resource sag deepening Japan Inc.'s woes

TOKYO -- Corporate Japan continued to suffer from tumbling resource prices and emerging-economy weakness during the January-March quarter, with both three-month and fiscal year earnings falling from a year earlier.

Aggregate quarterly pretax profit fell 20% from the year-earlier level for 244 companies that closed their books in March and had announced earnings by Thursday. Financial companies and power companies with no plans to restart nuclear operations were excluded from calculations. Fiscal 2015 profit dropped by around 1%.

Year-over-year profit growth on a quarterly basis peaked at around 30% in January-March 2015 and has declined since, falling below zero to minus 10% for October-December. That drop widened in the first quarter of 2016. The surveyed group represents just 16% of listed companies.

Headwinds continue

Falling resource prices are a major factor in declining earnings. Companies including trading houses and oil distributors booked more than 3 trillion yen ($27.7 billion) in impairment losses on resource-related assets in fiscal 2015, the highest level since the 2008 financial crisis. Mitsubishi Corp. and Mitsui & Co. produced particularly large losses, as did JX Holdings and Sumitomo Metal Mining.

Sluggish emerging economies generated headwinds as well. Japan's three leading marine shippers -- Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen -- each announced declines in pretax profit Thursday. Shipping fees have plummeted for bulk carriers, which transport resources such as coal and iron ore to China and elsewhere. The decelerating global economy has caused container shipping rates to plunge as well. "Cost-cutting measures couldn't compensate for the souring market," Nippon Yusen President Tadaaki Naito said.

The China-led decline in steel prices caused Nippon Steel & Sumitomo Metal's pretax profit to tumble 56% in fiscal 2015. Construction machinery makers such as Komatsu saw declines also, due to sluggish emerging-market demand. Alpine Electronics, meanwhile, was hit with slow sales of car navigation systems in China and Southeast Asia.

Mixed outlooks

Not all companies fared poorly. ANA Holdings and Japan Airlines on Thursday each announced record pretax profit. A surge in overseas visitors to Japan made for brisk business, while low fuel prices caused profitability to soar.

Certain companies reliant on internal demand also lifted overall earnings. The new Hokuriku Shinkansen bullet train line delivered East Japan Railway, also known as JR East, its highest-ever pretax profit. Cosmetics maker Kose logged record profit for the third straight year on rising sales of products geared toward foreign visitors.

Still, fiscal 2016 is off to a rough start. The yen is now at around 108 to the dollar, far stronger than the fiscal 2015 average of about 120. Even at its current level, the currency looks to put a large dent in overseas earnings when those funds are converted into yen.

Mazda Motor's pretax profit is seen falling for the first time in five years in fiscal 2016 in light of the strong yen. Yaskawa Electric, which pulled in record profit last fiscal year, forecasts a double-digit dip. Robotics maker Fanuc, meanwhile, sees the yen averaging 105 to the dollar for the fiscal year, joining a number of companies resigning themselves to the currency's extended strength.

(Nikkei)

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