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Business Insight

Japanese Profits Slump

Tomoko Kamata

China's economic slowdown is being felt around the globe. In Japan, many companies reported a drop in pretax profits for the October-December period of 2015. A weaker yen has helped firms boost their business results. But this fiscal year, business leaders say the currency may not provide those advantages.

Analysts at SMBC Nikko Securities surveyed more than 600 companies as of Tuesday. They say combined pretax profits were down 6.3% in yen terms from the same period a year ago. Many firm leaders say they're being hurt by China's economic slowdown.

Major steelmaker Kobe Steel runs a construction machinery factory in China. Company officials revised their forecast downward. They predicted the group's net loss for the fiscal year would be about $170 million. They said their market shrunk to less than one-third from the peak of 2011.

"We had demand for 170,000 units in China. The market has shrunk to 50,000 at this point."
Naoto Umehara / Executive Vice President, Kobe Steel

Surveyors say profits at steelmakers slumped more than 62%. Steel prices have dropped as Chinese makers export surplus products at a discount.

Electronics maker Panasonic has also cut its business outlook, due to weak sales of semiconductors and air conditioners in China.

"Because sales in China are sluggish, inventory has increased significantly."
Hideaki Kawai / Managing Executive Officer, Panasonic

Some trading houses that invest in resource development, such as Sumitomo Corporation, posted losses.

Falling prices of crude oil and other resources are also affecting companies. Japan's top oil wholesaler JX Holdings slashed its business forecast for fiscal 2015 to a net loss of about $2.8 billion. Managers said the value of the firm's oil inventory has plunged.

"The fall of the price was beyond our prediction."
Katsuyuki Ota / Executive Officer, JX Holdings

But some sectors consuming those resources are benefiting from the cheaper prices. Textile manufacturers enjoyed a nearly 56% jump in profits.

An analyst says Japan's business earnings will continue to be affected by China's economy, and risk factors will remain.

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