Oil price volatility tops list of earnings risks for Japan firms - Reuters survey

TOKYO, Oct 8 : Volatility in the global crude oil market tops the list of major risks for Japanese companies, followed by foreign exchange fluctuations and rising interest rates, a Reuters survey showed on Thursday.

The US-Israeli war on Iran, which began on February 28, has constrained crude oil supply, sent energy costs higher and driven up prices of a wide range of oil-derived products, including auto parts and construction materials.

In 2025, resource-poor Japan imported 94 per cent of its crude oil from the Middle East.

About 37 per cent of the survey's respondents chose crude market volatility as the top risk to their earnings prospects, while 21 per cent picked foreign exchange moves and 19 per cent selected higher interest rates.

"Rising energy costs driven by the crude oil market and investment cutbacks during a period of rising interest rates that are cooling domestic demand for cement - those are the risk factors," a manager at a company in the ceramics sector wrote in the survey.

The ceramics sector includes manufacturers of glass, cement and ceramic products.

Last month, the Bank of Japan raised interest rates to a 31-year high, with Governor Kazuo Ueda signalling that the central bank has entered a new phase focused on preventing inflation from overshooting its target, which opened the door to further rate hikes.

"Real estate demand is bound to slow down because of higher rates," a manager at a real estate firm said.

Multiple companies participating in the survey also cited uncertainties about the sustainability of artificial intelligence-related investment - which has spurred demand for advanced microchips and prompted a rapid buildup of data centres - as a potential earnings risk.

"It is vitally important for corporate management to ascertain how much longer an increase in demand brought about by AI investment lasts and when such demand starts turning lower," a respondent at a machinery maker said.

Last month, the Mitsubishi Research Institute said AI investment, centred on data centres, is projected to expand over the medium to long term, but the pace of investment may be adjusted due to factors like power constraints, stricter regulations and rising costs.

The poll was conducted by Nikkei Research for Reuters from September 18 to October 2. Nikkei Research contacted 508 companies, of which 215 responded on the condition of anonymity.

On financial performance, 32 per cent of respondents see net earnings for the first half of the current business year beating their own forecasts, while 22 per cent believe they are missing their original outlook. And 46 per cent expect half-year results to be in line with initial projections.

A fiscal year starts in April for most major Japanese companies. Earnings announcements for the April-to-September period are scheduled for later this month and into November.

For the second half of the fiscal year, more companies are bearish than bullish about their financial outlooks.

About 22 per cent of respondents expect net earnings to fall short of their initial forecasts, 20 per cent expect October-to-March earnings to exceed their estimates and 58 per cent say their initial outlook remains intact, the survey showed.