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Economy

Strong yen casts broad shadow over Japan Inc.

TOKYO -- A stronger yen tripped up a wide range of listed Japanese companies last quarter, a departure from the pattern of massive losses at just a few blue chips weighing on overall earnings.

Aggregate pretax profit declined year on year in the April-June quarter for the first time in four years, slumping 17%. Net profit tumbled 21% as well. Earnings deteriorated in 25 of 32 nonfinancial industries. Japan Inc. performed markedly worse than businesses in the U.S. or Europe, where profits slid 2.5% and 7.8%, respectively, according to data from Thomson Reuters.

A stronger yen was the main culprit behind the manufacturing sector's 21% pretax profit drop. The Japanese currency averaged 108 to the dollar for the quarter, 13 yen stronger than a year earlier. Total profits in three major overseas-oriented industries -- electric appliances, machinery, and cars and autoparts -- plunged 847.4 billion yen ($8.38 billion), accounting for more than half of the overall 1.57 trillion yen decline.

The malaise hit even areas that fared well in fiscal 2015, such as the chemical industry, where profits slid more than 20%. Mitsubishi Chemical Holdings' pretax profit fell 22% amid falling prices for basic chemicals used as plastic feedstock. Profit dived 48% at Sumitomo Chemical as segments positioned as growth areas foundered, including information-technology-related chemicals and health and crop sciences.

Nonmanufacturers fared only slightly better, with pretax profit down 11%. Trading houses continued to struggle. Sumitomo Corp.'s pretax profit tumbled 66%, owing partly to anemic copper and nickel prices. Cost cuts did not fully offset the impact of weakness in commodities markets, Chief Financial Officer Koichi Takahata said. Low resource prices also hit the marine freight sector, which moved into the red as bulk and container shipping rates sank. 

Many domestic-demand-focused businesses that had been solid performers ran out of steam. "Negative surprises stood out" among these companies, Makoto Sakuma of Asahi Life Asset Management said. 

Pretax profits in the retail industry slipped 12%. Isetan Mitsukoshi Holdings' pretax profit fell 44% as foreign tourists showed less appetite for big-ticket purchases, along with a similar slump among domestic consumers. High-margin women's apparel also sold poorly.

At airline ANA Holdings, another company whose earnings hinge on tourism, pretax profit dropped 33%, stemming largely from lower rates on Chinese routes. The Kumamoto Prefecture earthquakes in April eroded demand for domestic flights as well.

(Nikkei)

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