Japan corporate profits tumble in 2nd quarter on U.S.-China trade war

02, Sep. 2019

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By Satoshi Iizuka

TOKYO, Kyodo - Corporate profits in Japan plunged 12.0 percent in the April-June quarter from a year earlier, hit by escalating trade tensions between the United States and China, government data showed Monday.

Still, at 23.23 trillion yen ($218.83 billion), pretax profits remained at the second-highest level on record, according to the Finance Ministry. The fall followed 10.3 percent growth in the January-March period.

Capital spending by manufacturers for purposes such as building factories as well as adding equipment and software fell 6.9 percent to 3.62 trillion yen, down for the first time in eight quarters.

Telecommunication equipment and electronic machinery makers contributed to the sluggish results amid declining overseas demand for such items as auto and smartphone parts on the back of the intensifying trade friction between the world's two biggest economies.

Meanwhile, investment by all nonfinancial sectors rose 1.9 percent to 10.87 trillion yen, increasing for the 11th consecutive quarter. It had expanded 6.1 percent in the previous quarter.

On a quarter-on-quarter basis, seasonally adjusted capital expenditure grew 1.5 percent.

Sales edged up 0.4 percent to 345.91 trillion yen, rising for the 11th straight quarter, supported by gains by the service and real estate sectors.

The Cabinet Office is scheduled to release revised gross domestic product data for the second quarter of 2019 on Sept. 9, taking into account the latest capital spending figures.

Preliminary GDP data showed the world's third-largest economy grew an annualized real 1.8 percent in the April-June period, supported by solid consumer spending and capital expenditure.

A ministry official who briefed reporters said the latest corporate survey results reflected the government's official view that the world's third-largest economy is recovering at a moderate pace.

Takeshi Minami, chief economist at the Norinchukin Research Institute, warned Japanese companies' robust appetite for investment may take a hit after October, when the government raises the consumption tax to 10 percent from the current 8 percent.

“There is the possibility that fallout from the consumption tax hike could rapidly spread among nonmanufacturers,” which are less vulnerable to the global economic trend than manufacturers, Minami said.

The Finance Ministry surveyed 32,107 companies capitalized at 10 million yen or more, of which 22,729, or 70.8 percent, responded.

In fiscal 2018 through March, capital spending rose 8.1 percent to 49.13 trillion yen. Pretax profits rose slightly 0.4 percent to 83.92 trillion yen, but sales were down 0.6 percent to 1,535.21 trillion yen.

Domestic firms' retained earnings climbed 3.7 percent from the previous year to 463.13 trillion yen, hitting a record for the seventh consecutive year. (Kyodo)

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