Announcement: Moody's: Japanese corporate earnings to benefit from moderate global economic growth in 2018

Moody's Japan K.K. says that moderate global economic growth and solid domestic demand -- backed by continued monetary and fiscal accommodation -- will support Japanese corporate earnings in 2018, with the outlooks for most sectors being stable.

"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%-3%," says Mihoko Manabe, a Moody's Associate Managing Director.

"The recovery in commodity prices will support the earnings of trading companies, and the oil & gas and mining sectors, but higher raw material costs may pressure margins for autos," says Manabe.

"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," says Manabe.

Moody's conclusions are contained in its just-released presentation, "Non-financial corporates -- Japan, 2018 Outlook".

Continuing monetary and fiscal accommodation will boost domestic demand to some extent next year, while the shift toward electric vehicles provides potential earnings opportunities to the manufacturing and service industries. In addition, technological changes and the mature state of the domestic market will compel companies to restructure and seek new investments.

Specifically, the outlook for the auto sector is negative, reflecting forecasts of low unit sales growth in 2018, although the negative impact of the higher yen has slowed.

However, the outlook is stable for the telecoms, steel, shipping, utilities, trading companies, electronics, oil & gas, pharmaceuticals and real estate sectors.

With telecoms, margin pressures continue, while the steel industry will receive support from stabilizing profitability and leverage. For shipping, overall business fundamentals are stable both domestically and globally, but leverage remains very high, and for electric utilities, profit levels will normalize, and trading companies' earnings will stabilize.

The consumer electronics sector will see stronger demand and stable earnings during 2018, while for diversified technology manufacturers, achieving improvements in profitability will be key to better credit quality.

As for the oil & gas industry, structural overcapacity in the Japanese refining and marketing sector will likely reduce through industry consolidation, and the pharmaceuticals industry will experience the effects of patent expiries and the introduction of new drugs. The real estate industry will see a slowing in the pace of growth, but leverage will stay stable.

In terms of downside risks, Moody's sees weaker-than-expected global economic growth, including in China and emerging countries, which will significantly decrease demand for Japanese exports. Other risks include a strengthening in the yen, protectionist policies in the advanced economies and geopolitical issues.

Upside risks include global demand -- especially from the US and China -- strengthening faster than expected, improvements in corporate earnings and cash flow leading to substantial declines in leverage, and the yen's sharp depreciation.