Corporate Japan's net profits to inch up 1% in sharp slowdown

Trade fears seem to be making companies more cautious in their earnings outlooks.

TOKYO -- Japanese corporate profits are on course to rise 1% for another record in fiscal 2018, an estimate that is significantly lower than the 34% jump marked a year earlier as the trade war slows the Chinese economy.

Net profits at 1,585 publicly traded nonfinancial enterprises are expected to rise 1% on the year to a record 30.22 trillion yen ($266 billion) for the term ending March 2019, according to data compiled by Nikkei. Aggregate sales are expected to rise 4% to 583 trillion yen.

In fiscal 2017, U.S. corporate tax cuts buoyed Japan Inc.'s profits. In addition to the absence of that boost, the impact of the U.S.-China trade war has begun to weigh on corporate earnings.

Looking at the second half alone, profit is expected to slide 15% on the year. Compared with August, net profit projections have been revised down in 16 of 32 industries, including nonferrous-metal companies, steelmakers and marine shipping companies. Food and retail enterprises have also lowered their estimates amid headwinds from natural disasters in Japan.

As the trade war leads Chinese companies to curb capital investment, demand for factory automation equipment has languished. This hits Fanuc, which has widened its projected decline in net profit to 22% from 20%. Mitsubishi Electric's profit is now expected to decrease 6% instead of 4%.

All four major nonferrous-metal companies have cut profit projections amid declines in prices of the metals and hence the earnings potential of their resource and smelting operations. Price trends in nonferrous metals like copper are often considered bellwethers of the global economy.

Sumitomo Metal Mining now projects net profit to decline 10%, a reversal from the previously forecast 4% increase. "Due to concerns over the global economic outlook, we are expecting a downtrend," said Hiroyuki Asai, a managing executive officer.

Auto parts makers like Denso face a squeeze from jacked-up U.S. tariffs on steel and aluminum.

There are some bright spots. All seven major general trading houses, like Mitsubishi Corp., are projecting their highest-ever profits in light of higher coal prices and growth in nonresource operations.

The softer-than-expected Japanese currency may also amplify profits for the full year. Large enterprises are assuming around 108 yen to the dollar on average for the second half -- stronger than the current market rate of about 113. If the rate stays at the current level, it will buoy earnings. And the recent drop in crude oil prices could slash costs of operating factories at many companies.

For the first half ended September, combined net profit climbed 20% to a second annual record. One in four companies, or 367, booked their highest-ever tallies. Rebounding commodity prices lifted margins at oil wholesalers like Idemitsu Kosan and such chemical companies as Shin-Etsu Chemical, which sells resins used in automobiles.

Large-capitalization companies such as Toshiba, which logged a sizable profit from the sale of its flash memory unit, drove the profit jump. But there were some special factors at play. SoftBank Group booked huge valuation gains on its SoftBank Vision Fund investment vehicle.

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