High oil prices are squeezing the profit margins of Japanese companies: analysts have significantly reduced profit forecasts for 113 Japanese listed companies.

With the dramatic shake-up in the global energy market, the Japanese capital market is facing its most severe profit forecast revision since mid-last year. Due to the continuous escalation of the geopolitical situation in the Middle East, especially the breakdown of US-Iran peace talks leading to a sharp increase in the risk of blocking the Strait of Hormuz, international crude oil prices have soared. This external shock has directly hit the soft underbelly of the Japanese economy, forcing many seasoned securities analysts to intensively downgrade profit forecasts for Japanese listed companies. Data shows that in the past week, the number of companies whose profit forecasts have been downgraded by analysts has reached 113, exceeding for the first time since July 2025 the number of companies whose forecasts have been raised. It is understood that as a country highly dependent on imported energy, Japan needs over 90% of its crude oil supply to pass through the Strait of Hormuz. The sustained high oil prices have not only pushed up the direct raw material costs of the manufacturing industry but have also created a comprehensive squeeze on the entire industry chain through the transmission of logistics and electricity costs. The surge in oil prices has prompted Nomura Securities to lower profit expectations for companies such as Kao Corporation and Unicharm Corporation. Shingo Ide, Chief Stock Strategist at NLI Research Institute, stated, "Analysts may be forced to lower forecasts to some extent." He also mentioned that profit guidance released in late April may be more conservative. In terms of specific industry impacts, the consumer goods retail and material processing industries have become the hardest-hit areas in this round of revisions. Mainstream investment firms such as Nomura Securities have recently publicly lowered profit targets for chemical giant Kao Corporation and hygiene products leader Unicharm Corporation, citing the slow pace of passing on petrochemical raw material costs compared to the rise in oil prices. At the same time, Japanese domestic food and retail giants have not been spared. Italian chain restaurant Sailsia has lowered its annual profit guidance due to the skyrocketing costs of fuel and food transport, leading to a sharp decline in its stock price after the announcement; Although retail giant AEON STORES has maintained its existing financial guidance, its management has expressed deep concerns about the consumption weakness caused by rising energy prices during its financial results conference. The profit pressure is quickly transforming into systemic economic risks and triggering a collective withdrawal of foreign funds. The latest survey by Teikoku Databank revealed that over 90% of Japanese companies are extremely concerned about the current situation in the Middle East, with nearly half of the surveyed companies admitting that if the high oil price situation continues for another six months, they will have to scale back their core business operations. Driven by these expectations, foreign investors have accelerated the selling of Japanese stocks recently, causing the performance of the Nikkei 225 index to significantly lag behind other developed markets such as the US. Since the US and Israel launched missile attacks on Iran on February 28, the Japanese stock market has continued to underperform compared to US and European stock markets. The actual volatility of the Nikkei 225 index is twice that of the S&P 500 index. Hiroki Takei, a strategist at Resona Holdings, said, "The earnings season is approaching, which may be one of the factors driving persistently high volatility." He mentioned that due to the dependence on Middle Eastern oil, the Japanese market is more volatile and commented that companies may provide more conservative performance guidance. Masanari Takada, a quantitative and derivatives strategist at J.P. Morgan Securities Japan, suggested that since the US has a lower dependence on Middle Eastern oil, American stocks may be a relatively safer choice. He recommended selling Nikkei 225 index call options and using the proceeds to buy S&P 500 index call options. Yoshitaka Suda, Cross-Asset Strategist at Nomura Singapore, pointed out that due to the intensification of European investors' mistrust of the US government caused by the Iran war, they may eventually re-buy Japanese stocks as an alternative to American stocks. In addition, April has traditionally been a strong month for the Japanese stock market as foreign investors use dividend cash from US and European companies to purchase Japanese securities. Fabien Yip, market analyst at IG International, stated that the future of the Japanese stock market ultimately depends largely on when the Strait of Hormuz will reopen. However, she emphasized, "Even if oil prices fall to below $100 and remain around $80, it will still have a considerable impact on consumer prices." Meanwhile, the Bank of Japan (BOJ) is closely monitoring this dynamic. If input inflation driven by energy costs spirals out of control, the BOJ may be forced to take further interest rate hike measures under the pressure of economic weakness, casting a darker shadow over the path to recovery for Japanese companies.