Outlook for Japan gloomy, experts say
By Tim Kelly and Ian Messer
Bloomberg News Service
TOKYO Matsushita Electric Industrial Co. sought to woo shoppers with Japan's cheapest DVD recorder. The world's biggest consumer electronics maker ended up cutting its annual profit forecast by 12 percent.
The gloom is mirrored across corporate Japan, where the 1,911 listed companies that had reported earnings by Nov. 26 cut net income forecasts for the fiscal year by an average of 11 percent even though first-half profit rose 81 percent.
Demand in Japan has sagged as the key Nikkei 225 index fell 15 percent in six months and cost-cutting left thousands jobless. Falling wages and near-record unemployment may further discourage consumers, while government moves to force banks to shed bad debt may prompt more bankruptcies.
"Prices are slumping in markets around the world, particularly in the U.S.," Matsushita president Kunio Nakamura said in Tokyo last month. "We are worried about how demand will pan out in the holiday season."
Overall, sales fell 0.1 percent in the first half, Bloomberg Data shows. While companies predicted 0.8 percent sales growth, they cut forecasts 1.2 percent.
The least optimistic companies were nonmanufacturers such as contractor Obayashi Corp., which slashed their annual profit forecasts 18 percent.
Yokohama Rubber Co. and other tiremakers, by contrast raised forecasts an average of 8 percent.
"There is more pessimism than there was six months ago," said Akihide Kinugawa, who helps manage $164 million at T&D Asset Management Co.
Reduced forecasts overshadowed a period in which companies said net income surged by a combined 81 percent.
Gains were led by exporters, particularly automakers, which may benefit from any pickup in consumer confidence. A falling yen would also help by making Japanese products cheaper overseas.
Nissan Motor Co., Japan's third-biggest automaker, left its full-year profit target unchanged, saying it expects net income to rise a third. First-half profit rose by a quarter. Nissan shares are up 42.5 percent this year, compared with a 2.6 percent gain in the Topix Transportation Index and a 14 percent drop in the Nikkei 225.
"I still like exporters in Japan," said Oscar Castro, who manages $1.6 billion in stocks at Montgomery Asset Management LLC and plans to hold onto shares of Canon Inc., Sony Corp. and Honda Motor Co. "I believe that the yen will weaken."
The yen rose to 121.81 against the dollar in the first six months from 132.71, averaging 123.04 yen against the U.S. currency. That compares with 122.07 yen in the previous year.
Even so, many of the profit gains at companies in the first half came as they squeezed costs not because of an improving economy.
"Consumer spending is still weak in Japan," said Takeshi Yamaguchi of Sumisei Global Investment Trust Management Co.
Matsushita shed 13,000 jobs in the last business year under a reorganization that cost more than $1 billion and shifted production to lower-cost factories in China and elsewhere. Sanyo Electric Co., the world's biggest maker of digital cameras and mobile phone batteries, wrung an agreement from its workers to cut wages by a fifth.
Cash earnings including salary, overtime and bonuses for Japan's more than 50 million company employees fell 1.2 percent in September compared with a year ago, the seventeenth month of declines.
Employment figures out today may underscore the slump. Some 34 economists surveyed by Bloomberg said unemployment in October rose 0.1 percentage points to 5.5 percent, matching last December's record.
Concern that the U.S. recovery is lagging has added to the gloom.