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Japan-Update

Rebounding resources buoy corporate Japan's earnings

Emerging economies, weaker yen provide added tailwind

TOKYO -- Major Japanese enterprises are upgrading their earnings forecasts for the current fiscal year on the strength of higher natural resource prices and recovering emerging economies.

Fifty-three large companies have revised net earnings outlooks so far in 2017 for the year ending March, with nearly 70% raising guidance, according to Nikkei calculations. Additional upgrades are likely with the release of third-quarter results in the coming days.

Mitsubishi Corp. projects a net profit of 330 billion yen ($2.86 billion) for the full year but is on track to surpass 400 billion yen. Coking coal prices have more than doubled from a year ago. The Japanese trading house plunged into a 149 billion yen net loss in fiscal 2015, taking a massive hit in the resources segment.

The upturn in the natural resources market has been underpinned by emerging economies' renewed strength. Nippon Yusen and Mitsui O.S.K. Lines are expected to report pretax profits of roughly 10 billion yen for the October-December period. This would mark the first profit in three quarters for Nippon Yusen and a doubling in profit from the prior quarter for Mitsui O.S.K. Bulk carrier rates have improved on growing transport needs for China-bound iron ore and coal.

Fanuc upgraded its earnings forecast Thursday, citing renewed demand for computer numerical control machines in China and elsewhere in Asia. Meanwhile, Chinese smartphone manufacturers are using more memory in their handsets, giving chip-related companies a boost. Advantest, which makes chip-testing equipment, has upgraded its full-year outlook.

Yen depreciation since the American presidential election has also been a boon. Mitsubishi Motors will likely book an operating loss of around 8 billion yen for the year ending March 31, an improvement of about 20 billion yen from its forecast. The weaker currency is helping to improve export profitability.

Even as earnings outlooks brighten for a broad range of industries, the protectionism championed by U.S. President Donald Trump poses risks. The extent to which he will follow through on such policies is difficult to assess, and a comment from Trump could rekindle appreciation of the yen. Structural issues facing the Chinese economy, such as overproduction, have yet to be resolved as well.

(Nikkei)

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