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Japan Inc.'s profit outlook dims on stronger yen

Double-digit growth still expected as prices inch upward

TOKYO -- Corporate Japan's earnings prospects for fiscal 2017 have softened because of the yen's appreciation but are still seen notching double-digit growth, according to brokerage projections.

The nation's four leading securities companies review earnings projections for listed companies every three months. Nomura Securities has downgraded its pretax profit growth projection for major nonfinancial firms by 3.5 percentage points to 11.1%. Daiwa Securities and SMBC Nikko Securities have lowered theirs by 1.2 points and 5.4 points.

They see the home currency trending stronger. Nomura has revised its assumed rate from 114 yen to the dollar to 108 yen. Mizuho Securities has kept its rate at 110 yen but cut its profit growth forecast by 1.6 points. "Higher labor and other costs will be a factor in slower profit growth," strategist Nobuhiko Kuramochi explained.

Still, all four companies kept their growth projections in the double digits, citing efforts to raise prices.

SMBC Nikko expects profitability to improve at food makers, retailers and other companies dependent on domestic demand, thanks to price hikes. The focus will be on how price increases take hold in the steel and printing paper industries. Daiwa Securities sees higher prices lifting profits at tire manufacturers, likely blunting the negative effects of a strong yen in the automotive industry.

Workplace reform could also have a positive impact on profits. "We will likely see investments in information technology that improves productivity, and that will be a major factor in boosting corporate profits," suggested Masashi Akutsu, chief equity strategist at SMBC Nikko.


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