Oil, inflation threaten Japan Inc spreads

Japanese bond investors have been slow to recognise the inflationary threat from record high oil prices, and an expected squeeze on corporate profits from steep commodity prices should push credit spreads wider in coming months.

With many Japanese firms assuming a crude oil cost of roughly $110 a barrel in the current fiscal year ending in March 2009, they may not meet their profit targets at current levels, let alone higher ones, said Mana Nakazora, head of credit research at JPMorgan Securities.
Signs of damage to the earnings of oil-dependent companies will likely start showing up in the April-June quarter, analysts said. Some of the potential victims include Japan Airlines, automakers, pulp/paper and shipping firms.

Reuters