A combination of moderate global economic growth and solid domestic demand will support Japanese corporate earnings in 2018 and produce stable outlooks for most sectors in the country.
"We project 2018 GDP growth of 3.2 % for the G20 economies and 1.1% for Japan, while rated Japanese companies' EBITDA will grow 1% to 3%," said Mihoko Manabe, a Moody's associate managing director, in a new report. “The recovery in commodity prices will support the earnings of trading companies, and the oil and gas and mining sectors, but higher raw material costs may pressure margins for autos. At the same time, for Japanese corporates overall, a cautious stance towards financial management and investments will lead to a modest fall in leverage, supporting credit quality and ratings," Manabe said.
Moody’s analysts expect ongoing monetary and fiscal accommodation to boost domestic demand in the coming year. Meanwhile, electric vehicles will provide potential earnings bumps to the manufacturing and service sectors. Still, Moody’s outlook for the Japanese auto sector is negative on low unit sales predictions for 2018. Maturing technologies already in use will make way for newer technologies and propel companies to restructure and look for new investments. Telecoms, steel, shipping, utilities, trading companies, electronics, oil and gas, pharmaceuticals and real estate all have stable outlooks.
Downside risks for the Japanese economy include lower-than-anticipated global economic growth that could weaken demand for exports, a strengthening yen, geopolitical risks and protectionist policies in advanced economies, analysts said.
– Nicholas Stern, managing editor