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Profit growth seen slowing on stronger yen

TOKYO -- The resurgent yen is likely to put the brakes on earnings growth for many Japanese companies this year, though the end to the free fall in crude oil prices is seen buoying oil distributors to the black.

     Pretax profit of 181 listed companies that close their books in December likely will expand just 2% on the year to 3.07 trillion yen ($27 billion), compared with last year's 12% increase. Companies doing business globally are to be particularly hurt by a stronger yen.

     Bridgestone assumes a foreign exchange rate of 115 yen per dollar for 2016, compared with the actual rate of 121 for 2015. With weakening emerging-economy currencies exacerbating the woes, forex is expected to erode the tire maker's operating profit by 41 billion yen -- a stark contrast to the 55 billion yen profit boost enjoyed last year. This is one reason Bridgestone expects its first profit decline in seven years.

     Tire demand is solid in North America, a profit center. "If we did not have the forex effect, both revenues and profit would grow," CEO Masaaki Tsuya said. But after Bridgestone announced its projection Wednesday, the company's shares lost 2% Thursday despite the Nikkei Stock Average rising 2.2%.

     The average forex assumption of 60 key companies is around 118 yen per dollar. Sixteen companies including Bridgestone, Sumitomo Rubber Industries and DMG Mori assume 115 per dollar.

     The decline of currencies in resource-rich countries also will have an impact. Beverage maker Kirin Holdings assumes a rate of 83 yen per Australian dollar for 2016 compared with 93 last year. This change alone likely will reduce profit by 5.2 billion yen.

     A slowdown in consumption back home is also to blame for the dimmer outlooks. Japan's October-December gross domestic product data released Monday shows that consumer spending decreased after rising in the previous quarter.

     Apparel giant Sanyo Shokai expects to bleed 1.7 billion yen in pretax loss in 2016 -- down from a 7 billion yen profit in 2015 -- due partly to key brand contracts expiring. Duty-free store operator Laox is bracing for a nearly 20% profit decline linked to weaker demand from foreigners visiting Japan.

     Yet some companies are seen enjoying strong earnings thanks to brisk sales abroad. Canon, which assumes a forex rate of 120 yen per dollar, projects a 4% increase in pretax profit, reversing a decline logged in the previous year. Toiletries maker Kao is also on track for profit growth thanks to strong sales in China.

     With the plunge in crude oil prices seen running its course, oil distributors are to benefit from smaller valuation losses on inventory. Showa Shell Sekiyu and TonenGeneral Sekiyu both expect to turn to the black this year.

(Nikkei)

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