Earnings Uncertainty Due to Geopolitical Conditions, the Chinese Economy and Foreign Exchange Fluctuations

「During the fiscal year under review, personal consumption showed signs of recovery against a backdrop of improving employment and income conditions, while capital investment remained firm, supported by improving corporate earnings and demand for digitalization and labor-saving investment. Meanwhile, continued price increases, exchange-rate fluctuations and concerns over a slowdown in overseas economies acted as downside factors, and the outlook remained uncertain.」

「Looking ahead, construction demand is expected to remain firm, but the business environment is expected to remain extremely uncertain due to risks including rising material prices and labor costs, as well as sharp fluctuations in energy prices resulting from the worsening situation involving Iran in the Middle East.」

「During the interim consolidated accounting period under review, Japan's economy maintained a gradual recovery trend, albeit slight, due to exceptional demand resulting from the extremely hot summer, construction demand and increased digital investment. Meanwhile, disruption surrounding the Trump tariffs was a headwind for external demand, while persistently high raw-material and logistics costs and labor shortages continued to put downward pressure on corporate earnings, leaving corporate management in a difficult situation.」

「During the fiscal year under review, inbound demand and IT-related capital investment remained firm in Japan. However, higher prices for food, including rice, restrained personal consumption, while soaring raw-material costs, higher labor costs and difficulty securing personnel squeezed earnings at a broad range of companies, and the domestic economy deteriorated slightly toward the end of the period.」

「During the interim consolidated accounting period under review, financial markets fluctuated sharply amid a change in the exchange-rate trend from yen depreciation to yen appreciation and historically large movements in share prices. The domestic economy showed a slight overall improvement, led by the tourism industry and seasonal demand. Meanwhile, negative factors continued, including higher raw-material prices and logistics costs, labor shortages and an increasing consumer preference for saving, and the business environment for companies is expected to remain difficult, including in light of rising international tensions.」

「Meanwhile, the negative impact on Japan's economy has continued from the weaker yen, driven in part by the Japan-U.S. interest-rate differential, concerns over the outlook for the Chinese economy, the prolonged war in Ukraine, and soaring energy-resource and raw-material prices resulting from Israel's invasion of the Gaza Strip.」

「During the cumulative third quarter under review, despite downside factors including chronic labor shortages, production adjustments due to increased inventories and higher prices for daily necessities, the food-service and tourism industries remained firm due to various events and continued inbound demand. Private-sector capital investment was also recovering, and the domestic economy overall showed a slight improvement.」

「During the cumulative second quarter under review, increased cost burdens for energy and other items, a stronger preference for saving, the weaker yen and slowing growth in the U.S., European and Chinese economies weighed on corporate activity, and the domestic economy trended downward slightly across many industries. Many concerns remain, including rising prices for daily necessities, prolonged labor shortages and the 2024 problem, and the business environment for companies is expected to remain difficult.」

「During the cumulative first quarter under review, higher material prices, a slowdown in overseas economies, higher prices for daily necessities and prolonged labor shortages were negative factors. However, positive factors included inbound tourism, an increase in the workforce, revenge spending following the COVID-19 pandemic and easing semiconductor shortages. As a result, progress toward normalizing economic activity and social life accelerated, and the economy continued to recover gradually.」

「During the cumulative third quarter under review, Japan's economy showed signs of improvement, particularly in services consumption, as economic activity moved toward normalization even while the eighth wave of novel coronavirus infections spread nationwide. However, the economic environment for companies remained severe and unstable due to numerous downside factors, including persistently high production costs, higher prices for daily necessities, labor shortages, the prolonged situation in Ukraine and concerns over slowdowns in the U.S., Chinese and European economies.」

「The environment surrounding Japan's economy remains extremely difficult and uncertain, owing to the situation in Russia and Ukraine, the rapid depreciation of the yen, soaring resource and raw-material prices, continued supply constraints, and concerns over downside risks in the U.S., European and Chinese economies.」

「The prolonged situation in Russia and Ukraine, the rapid depreciation of the yen and persistently high crude oil and raw-material prices became factors behind declining earnings power at many companies, particularly in manufacturing, amid an uncertain external environment.」

「During the cumulative third quarter under review, economic activity in both production and consumption gradually recovered as the lifting of the state of emergency increased the movement of people, improved sentiment related to personal consumption and raised companies' willingness to invest in capital. However, numerous downside risks continued, including higher procurement prices due to soaring lumber, steel and petroleum-product prices and the impact of supply constraints resulting from the spread of infections overseas, and the situation regarding new variant strains also requires close monitoring.」

「During the cumulative second quarter under review, Japan's economy stalled temporarily after beginning to recover gradually, due to a sharp increase in novel coronavirus cases, record rainfall and prolonged heavy rain, as well as shortages and soaring prices of materials such as metals, lumber and semiconductors. Meanwhile, in the latter half of the period, the number of new infections trended downward as vaccination spread, and achieving a better balance between preventing the spread of infection and stimulating economic activity is expected to become increasingly important for the normalization of economic activity.」

「During the cumulative first quarter under review, Japan's economy remained in a severe situation, as economic activity was significantly restricted through controls on the movement of people resulting from extensions to the state of emergency and the periods covered by priority preventive measures, as well as the addition and expansion of target areas. Although expectations remain for the normalization of economic activity as vaccination coverage expands, there are also signs of an increase in infections due to the spread of variant strains, and uncertainty about Japan's economic outlook continues.」

「During the fiscal year under review, conditions remained extremely difficult in tourism-related and other industries due to the spread of the novel coronavirus disease. In some areas, corporate earnings recovered as the state of emergency reduced infections, but the renewed spread of infections increased uncertainty about the outlook.」

「During the cumulative third quarter under review, Japan's economy remained in a severe situation, with the recovery outlook still unclear as the spread of the novel coronavirus disease led to deteriorating corporate earnings and a decline in employment.」

「During the cumulative second quarter under review, Japan's economy remained in an extremely difficult situation, as the spread of the novel coronavirus disease caused social and economic activity to stagnate.」

「As the novel coronavirus spread worldwide, the Japanese government issued a state of emergency to prevent its further spread in Japan. Restrictions on nonessential and nonurgent outings and the spread of business closures caused market functions to stagnate across regions, industries and company sizes, resulting in a rapid deterioration of the domestic economy.」

「During the fiscal year under review, Japan's economy had generally progressed steadily against a backdrop of improvements in employment, income and corporate earnings. However, the prolonged U.S.-China trade friction increased uncertainty, particularly for export-oriented companies. In addition, the impact of the global spread of the novel coronavirus on the world economy increased day by day, resulting in increasingly uncertain conditions ahead.」

「During the cumulative third quarter under review, Japan's economy remained unstable as U.S.-China trade friction persisted. Although employment conditions improved, weakness was seen in corporate earnings, capital investment and export-related activities.」

「During the cumulative second quarter under review, Japan's economy remained in an uncertain situation, as the impact of U.S.-China trade issues and other factors led to weak exports of automobiles, large machine tools and semiconductors, among other products, despite continued improvements in employment.」

「Meanwhile, overseas, concerns including U.S.-China trade issues and the sluggish Chinese economy have led to an uncertain outlook.」

「During the cumulative third quarter under review, improvements were seen in corporate earnings as employment conditions continued to improve, personal consumption recovered and capital investment increased, despite concerns over an economic slowdown resulting from U.S.-China trade friction and other factors. Meanwhile, the civil engineering and construction industry, to which our group primarily belongs, remained stalled due to weakness in public investment and the impact of chronic labor shortages.」

「During the cumulative second quarter under review, Japan's economy remained in an uncertain situation, amid continued improvements in employment and income conditions but concerns over the impact of U.S. trade issues.」

「Meanwhile, overseas, protectionist trade policies pursued by U.S. President Trump have increased the risk of trade friction, including between the United States and China, and conditions allowing little room for complacency continue.」

「Although uncertainty in overseas political and economic conditions has increased due to policy developments in the United States and geopolitical risks in neighboring countries, domestic corporate earnings and employment and income conditions have remained favorable, and the economy is expected to continue its gradual recovery.」

「The United States and Europe also remained relatively firm, and despite concerns over sluggish economic growth in China and protectionist policies, conditions overall remained firm.」

「Meanwhile, concerns remain over the impact of uncertainty in overseas economies and fluctuations in financial markets, and conditions with limited visibility ahead continue.」

「During the cumulative first quarter under review, Japan's economy was gradually recovering, supported by increased exports due to the weaker yen and strong corporate performance resulting from higher share prices, as well as improvements in employment conditions, increased capital investment and a recovery in personal consumption.」

「The uncertain situation is expected to continue, owing to the increasing uncertainty surrounding political and economic conditions overseas and the impact of major fluctuations in financial and capital markets.」

「There have been signs of improvement in employment and income conditions, a recovery in exports and production due to the weaker yen, and an increase in private-sector capital investment. However, economic sentiment in Japan differs by industry, and conditions remain such that the economy cannot be said to be in a phase of steady recovery.」

「In the civil engineering and construction industry, to which our group primarily belongs, public works have been on a declining trend, while maintenance work on infrastructure and seismic retrofitting of public facilities also remained sluggish due to labor shortages and soaring construction-material prices.」

「Amid heightened uncertainty over international developments, a slowdown in the Chinese economy and fluctuations in foreign exchange markets, concerns have arisen over deterioration in corporate performance, particularly in export-oriented industries.」