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

Oil price volatility emerged as the top risk to the earnings of Japanese companies, according to a Reuters survey conducted among 508 firms. The survey, conducted from September 18 to October 2, also highlighted foreign exchange fluctuations and rising interest rates as significant risk factors. The US-Israeli conflict with Iran, which began in February, has led to a constrained crude oil supply, increased energy costs, and a rise in prices of various oil-derived products, such as auto parts and construction materials.

Japan imports 94% of its crude oil from the Middle East. Respondents from the ceramics sector attributed rising energy costs to the crude oil market and investment cutbacks during a period of higher interest rates, which are cooling domestic demand for cement. The Bank of Japan recently raised interest rates to a 31-year high, signaling a new focus on preventing inflation from overshooting its target, potentially leading to further rate hikes.

Uncertainties around the sustainability of AI-related investment, driving demand for advanced microchips and data centres, were also cited as a potential earnings risk.