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Alarm bells are ringing for Japan Inc. after a paint maker slashed its earnings forecast this week, offering a gloomy portrait of a brewing storm of rising global energy costs that is overshadowing hopes of an economic recovery.

The profit warning by Nippon Paint Holdings Co. Ltd. provided a stark example of the kind of inflation pressures that, combined with global supply-chain dislocations and rampant fuel shortages in China and India, prompted the International Monetary Fund on Tuesday to lower its global economic growth forecast for 2021.

Nippon Paint shares tumbled 7 per cent to their lowest in 18 months on Wednesday after it lopped nearly a quarter off its earnings guidance, citing rising raw-materials costs, stoked by surging oil prices. The benchmark Nikkei slid 0.32 per cent.

Investors in the world’s third-biggest economy are now bracing for a wave of profit warnings in a coming earnings season that – combined with a weaker yen – may raise serious questions about whether Japan can reap the benefit of an end in the country’s fifth wave of the coronavirus pandemic.

On Tuesday, the IMF cut its forecast for Japan’s growth this year by 0.4 points to 2.4 per cent.

Data from the Bank of Japan on Tuesday showed Japanese wholesale prices surged 6.3 per cent in September from a year earlier – the biggest price hike in 13 years. Adding salt to the wound, the yen weakened to a three-year low on rising U.S. interest rates and on worries about further widening in Japan’s trade deficit – likely fuelling rise in import prices.

“In the coming earning season, there will be a divergence between the companies that can pass on rising costs to their customers and those that cannot,” said Nobuhiko Kuramochi, market strategist at Mizuho Securities.

Japan’s quarterly corporate earnings reporting season will hit top gear later this month.

But earnings expectations in Tokyo now show signs of having peaked after steadily improving so far this year. The expected earnings of companies in the Topix benchmark for the current financial year, through March, 2022, dipped to 132.63 last week from a peak of 132.98 hit the week before.

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