Slumping profits of manufacturers from robots to cosmetics in Japan threaten to suppress investment and wages, adding to the likelihood of recession after the economy probably contracted last quarter.
In the three months to September, GDP shrank an annualised 3.4 per cent, according to the median estimate of 17 economists. That would be the steepest dip since the earthquake-hit first quarter of last year. The data is due on Monday. Machinery orders fell a more-than-estimated 4.3 per cent in September, a separate report showed yesterday.
The economy's decline mirrors an aggregate 34 per cent drop in net income at the 171 companies listed on the Nikkei-225 Index to report July-September earnings so far. Sharp and Panasonic expect to lose a combined 1.2 trillion yen (HK$116 billion) this year, while industrial robot maker Fanuc missed its forecast and cosmetics company Shiseido planned to cut costs.
"Worsening profits will make it harder for companies to be aggressive about investment and hurt consumption through smaller bonuses this winter and next summer," said Masamichi Adachi, a senior economist at JP Morgan Securities Japan. "In terms of the economic cycle, Japan is in a really bad position." The decline in machinery orders, an indicator of capital spending, was steep compared with the median forecast for a 2.1 per cent drop in a survey of economists. The nation's current account surplus was 503.6 billion yen in September, the narrowest for the month since at least 1985 and smaller than the median estimate of 761.8 billion yen.
Nomura Securities, Goldman Sachs and JP Morgan Chase cut their third-quarter gross domestic product forecasts last week after September exports dropped 10 per cent and industrial production fell the most since last year's earthquake. Nomura expects the deepest decline, of an annualised 5.1 per cent contraction, while all three saw GDP shrinking again in the fourth quarter.
"With no drivers visible in domestic or external demand, GDP seems almost certain to post a second quarterly decline," said Naohiko Baba, Goldman's chief economist in Japan.
The Bank of Japan remains under pressure to add to monetary stimulus after it expanded its asset-purchase programme for the second time in two months last week.
Sharp, Panasonic and Sony, which all posted record losses last fiscal year, are cutting jobs in a bid to return to profitability.
Last week, Shiseido, Japan's largest cosmetics maker, said it would cut costs after income fell by 45 per cent in the six months to September 30.