Uncertainty Around Capital Investment and Demand Conditions Due to Rapid Yen Appreciation

「The global economy remains highly uncertain, mainly due to developments in US tariff policy, with concerns over an economic downturn and its impact on financial markets.」

「During the period, Japan's economy continued to recover moderately. Personal consumption remained firm as the income environment improved despite the impact of rising prices, while capital investment increased on the back of strong corporate earnings. Overseas, however, uncertainty persisted amid concerns over geopolitical risks, including a shift toward monetary easing in Europe and the United States and heightened tensions in the Middle East.」

「However, the uncertain outlook persisted, owing to downside risks to overseas economies against the backdrop of China's economic slowdown and rising geopolitical risks associated with escalating conflict in the Middle East.」

「At the same time, conditions remained uncertain due to the global decline in semiconductor demand and increasing downside risks to overseas economies.」

「Moreover, the outlook has become increasingly uncertain, as semiconductor demand, a leading indicator for the manufacturing sector, is expected to remain subject to inventory adjustments through mid-2023.」

「Meanwhile, soaring energy prices and inflation caused by exchange-rate fluctuations have had a significant impact on the real economy, and the recent recovery in economic activity has slowed sharply. In addition, as overseas countries have raised interest rates to curb inflation, signs of a slowdown in the global economy have become increasingly pronounced, and the outlook remains extremely uncertain.」

「However, concerns about a slowdown in the global economy have intensified amid rising geopolitical risks and interest-rate hikes by countries seeking to curb inflation, and the need to closely monitor downside risks to the economy continues.」

「Meanwhile, the invasion of Ukraine by Russia and China's zero-COVID policy caused supply chain disruptions to become more pronounced. Combined with the rapid depreciation of the yen, this resulted in continued price increases for resources, energy, food, and other products, intensifying inflationary pressure. Accelerating inflation caused by higher raw material costs has been a factor weighing on corporate earnings, particularly in domestic-demand industries, and conditions remain difficult to assess going forward.」

「However, concerns about pressure on corporate earnings have increased as crude oil prices have surged and global supply chain disruptions have persisted.」

「During the cumulative first quarter of the current fiscal year, Japan's economy remained uncertain, with personal consumption continuing to languish amid the declaration of a state of emergency and requests to refrain from going out following the spread of COVID-19. Meanwhile, economic activity normalized in the United States and China as vaccinations progressed, and domestic manufacturing activity showed a gradual recovery, led by export-related industries.」

「However, downside risks to the economy remain significant, including the intensifying confrontation between the United States and China and the prolonged impact of COVID-19 resulting from the renewed spread of infections, and the business environment remains uncertain.」

「During the cumulative third quarter of the current consolidated fiscal year, Japan's economy remained on a moderate recovery track, supported by an improving employment environment and a recovery in personal consumption. However, exports stagnated because of the prolonged US-China trade friction and China's economic slowdown, affecting production activity and capital investment in Japan's manufacturing sector, and the outlook remained uncertain.」

「During the cumulative second-quarter consolidated period, Japan's economy remained on a gradual recovery path, supported by improvements in the employment environment and a pickup in personal consumption. However, exports stagnated amid prolonged US-China trade friction and an economic slowdown in China, with the effects also extending to production and capital investment in Japan's manufacturing sector, and uncertainty about the outlook continued to increase.」

「During the first quarter of the current consolidated cumulative period, the Japanese economy remained on a moderate recovery trend, supported by improvements in the employment environment and a recovery in personal consumption. However, exports stagnated amid prolonged US-China trade friction and an economic slowdown in China, affecting production and capital investment in Japan's manufacturing sector, and uncertainty about the outlook continued to increase.」

「Under these conditions, the group's industrial gas-related business performed steadily, despite the impact of higher electricity charges, against a backdrop of continued firm gas demand across a broad range of domestic manufacturing industries, including steel, automobiles and electronics.」

「Japan's economy remained on a moderate recovery trend, supported by a recovery in personal consumption due to improvements in employment and income conditions and improved corporate earnings. However, the outlook remained uncertain due to the effects of successive natural disasters, rising crude oil prices and concerns over escalating trade friction overseas.」

「Against this backdrop, the Group's industrial gas-related business generally performed well, as solid gas demand continued across a broad range of domestic manufacturing industries and operating rates recovered at customer plants for on-site gas supply to blast furnaces.」

「The domestic economy is expected to remain on a gradual recovery path as employment and income conditions improve, with the full-scale emergence of demand related to the Tokyo Olympics providing additional support, and corporate capital investment is expected to remain solid. Overseas economies are also expected to remain solid in the United States and Europe, while economic recovery progresses gradually in China and emerging Asian economies. However, geopolitical risks are increasing in some countries and regions, including those arising from trade friction between countries.」

「In overseas economies, although concerns over geopolitical risks in certain countries and regions remained, the US and European economies remained firm, while a gradual economic recovery continued in China and emerging Asian economies.」

「However, the pursuit of protectionist economic policies in Europe and the United States and political instability in the Middle East and East Asia pose risks of undermining Japan's continuing economic recovery. The business environment also remains uncertain due to increasingly severe labor shortages in various fields, rising electricity rates and sharp exchange-rate fluctuations.」

「Meanwhile, manufacturers' capital investment remained cautious and lacked momentum, partly because of the impact of sharp currency fluctuations resulting from changes in overseas conditions.」

「The domestic economy remained difficult to assess for a full-scale recovery, as the strong yen weighed on export-oriented manufacturers, production activity was affected by a succession of extreme weather events and disasters, and capital investment, one of the drivers of the economy, also remained sluggish.」

「In addition, the rapid appreciation of the yen heightened uncertainty about the outlook and led companies to take a more cautious approach to capital investment, resulting in a weaker start than in the previous fiscal year.」