Slowing corporate earnings due to a stronger yen, lower stock prices, and weak private consumption

「The global economy is expected to remain highly uncertain because of the prolonged situation in Ukraine, geopolitical risks in the Middle East, the slowdown in China, and the impact of monetary tightening in Europe and the United States. In particular, adjustment in China's real estate market and weak domestic demand are factors slowing growth across Asia, requiring a cautious assessment of the outlook for external demand.」

「During the current interim consolidated fiscal period, Japan's economy continued to recover moderately, although some areas remained weak, as the cycle from income to spending gradually strengthened. Prices continued to rise on an underlying basis, with price revisions for energy and food products also observed. Meanwhile, companies' ability to pass higher costs through to prices remained limited, and pressure from rising costs continued.」

「Japan's economy is expected to face an uncertain outlook as domestic policy management becomes unstable because the ruling coalition of the Liberal Democratic Party and Komeito lost its majority in the House of Representatives, while overseas geopolitical risks increase because of major changes in US policy following Republican candidate Donald Trump's victory in the US presidential election. Economic conditions, including trade, foreign exchange and interest rates, are expected to become more volatile.」

「During the first 6 months of the current consolidated fiscal year, Japan's economy experienced a stronger sense of slowdown as high inflation and the slowdown in overseas economies had a negative impact, compounded by downward pressures including the Noto Peninsula Earthquake.」

「Energy prices are expected to remain high, while yen depreciation and new supply-chain disruptions, against a backdrop of the confusing international situation including Russia's invasion of Ukraine, the Israel-Palestine conflict and US-China tensions, are expected to weigh on the economy. Meanwhile, personal consumption is expected to continue recovering because of rebound demand in services such as food service and inbound tourism demand,」

「During the first 6 months of the current consolidated fiscal year, the construction industry was unable to fully pass through to order prices the increase in construction material prices caused by Russia's invasion of Ukraine and yen depreciation resulting from the Japan-US interest-rate differential, and construction profitability had not recovered. Although some large-scale redevelopment projects had begun, the floor area of non-residential building starts in the Tokyo metropolitan area fell approximately 17.2% year on year for the same period (October 2021 to March 2022), partly because of longer construction periods caused by labor shortages. Construction orders received by the 50 major general contractors also fell approximately 1.2% year on year for the same period (October 2021 to March 2022).」

「Amid growing uncertainty about the economic outlook because of heightened tensions surrounding Ukraine and rising risks related to yen depreciation and inflation,」

「Japan's economy faces concerns that accelerating consumer price inflation, driven by surging energy prices and a sharp rise in import prices caused by yen depreciation, will restrain the recovery in personal consumption. Although yen depreciation is expected to boost exports and corporate activity, global economic growth could slow significantly because of a slowdown in the US economy resulting from monetary tightening, a downturn in China caused by its zero-COVID policy and real estate slump, worsening conditions in Ukraine, and restrictions on economic activity caused by winter power shortages in Europe. Uncertainty about the outlook has therefore increased.」

「No new business or other risks arose during the cumulative third quarter of the current consolidated fiscal year. There were also no material changes to the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「Although concerns remain about a slowdown in the Chinese economy, exports and capital investment are expected to support Japan's economy as overseas economies make a full recovery from the COVID-19 pandemic. Domestically, the launch of a large-scale economic stimulus package by the new administration, the development of treatments for COVID-19 and the easing of activity restrictions through further vaccinations are expected to support a recovery in personal consumption. However, the domestic economy is expected to remain uncertain because of concerns about higher prices caused by persistently high crude oil prices.」

「In the current third quarter, the floor area of non-residential building starts in the Tokyo metropolitan area increased 40.1% year on year, while construction orders received by the 50 major construction companies increased 21.2% year on year, indicating a recovery compared with last year, when the first state of emergency was declared.」

「During the first 6 months of the current consolidated fiscal year, the construction industry entered a lull between large projects. According to the Ministry of Land, Infrastructure, Transport and Tourism, the floor area of non-residential building starts in the Tokyo metropolitan area fell approximately 5.7% year on year, while construction investment, including renovation work, was postponed because of the COVID-19 pandemic, causing business conditions to deteriorate.」

「In the construction industry during the first 3 months of the current consolidated fiscal year, construction investment declined along with the economic slowdown caused by the spread of COVID-19. According to statistics from the Ministry of Land, Infrastructure, Transport and Tourism, construction orders received by the 50 major general contractors fell 4.1% year on year during the quarter and 15.9% year on year on a 2020 calendar-year basis. In addition, the average office vacancy rate in Tokyo's five central wards was 4.49% as of December 2020, up 2.94 percentage points from 1.55% a year earlier, indicating an easing trend in supply and demand, particularly for existing buildings. Concerns also remain that construction unit prices may decline as construction investment weakens, and the difficult conditions for forecasting performance are continuing.」

「Although signs of a partial recovery in exports and production have emerged in Japan against a backdrop of the reopening of economic activity in China and the United States, demand lost as a result of deteriorating corporate earnings and lower employee income is unlikely to be recovered in the short term. Accordingly, real GDP growth in fiscal 2020 is expected to be negative year on year.」

「During the first 9 months of the current consolidated fiscal year, the construction industry was affected by a rapid deterioration in the domestic economy caused by the COVID-19 pandemic. Although a small number of sites were suspended because of infections, there was no material impact on performance.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「Japan's economy is expected to remain uncertain, with attention required regarding the risk that prolonged US-China trade friction and uncertain overseas political and policy factors could cause overseas economies to slow further, as well as the impact of a consumption tax increase on personal consumption.」

「No new business or other risks arose during the cumulative third quarter of the current consolidated fiscal year. There were also no material changes to the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「There were no newly emerging business or other risks during the cumulative second-quarter period. In addition, there were no material changes in the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「No new business or other risks arose during the cumulative third quarter of the current consolidated fiscal year. There were also no material changes to the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「There were no newly emerging business or other risks during the cumulative second-quarter period. In addition, there were no material changes in the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「During the first 3 months of the current consolidated fiscal year, Japan's economy continued on a moderate recovery trend. The index of industrial production was trending upward against a backdrop of increasing exports, employment and income conditions continued to improve, and personal consumption maintained a recovery trend, albeit slowly.」

「Over the past year, corresponding to the current consolidated fiscal year, Japan's economy dispelled initial concerns about deterioration caused by overseas factors. Exports increased as the global manufacturing cycle improved, domestic demand became more resilient, and the Tankan survey's diffusion index for business conditions across all company sizes and industries reached its highest level in 26 years. Personal consumption also remained firm against a backdrop of improving employment and income conditions, presenting the appearance of a broad-based, balanced economic recovery.」

「During the first 9 months of the current consolidated fiscal year, Japan's economy continued to recover moderately, with corporate earnings improving against a backdrop of recovery in overseas economies and employment conditions continuing to improve. Meanwhile, uncertainty about the outlook for the domestic and overseas economies increased because of stagnation in the operation of the new US administration, moves toward the UK's departure from the EU becoming more concrete, and instability in East Asia.」

「Meanwhile, real personal consumption remained stagnant, and the rate of price increases also struggled to gain momentum.」

「Although the foreign-exchange market shifted sharply toward yen appreciation and corporate performance struggled to grow year on year, overall conditions remained stagnant as personal consumption recovered, supported by an increase in the number of employed people and growth in real employment income resulting from slower inflation.」

「Following the lifting of the US zero-interest-rate policy in December last year, the yen strengthened and share prices fell sharply, causing corporate performance to slow and personal consumption to remain weak.」