Japan’s Sharp Corporation reported a net loss of 138.4bn yen for the April to June period, prompting a cut of 5000 jobs, in an attempt to cut costs.
Sharp said that falling prices and a “greater than expected” slowdown in demand from Japan and China, had hurt its earnings.
The firm has also forecasted its annual loss to be 250bn yen, up from an earlier projection in April of 30bn yen.
Sharp said it expected “the business environment to remain unpredictable, with increased downside risks”, including “the possible return of the financial crisis in Europe, the appreciation of the yen, the ongoing deflation and energy supply issues in Japan”.
The fear is that demand will be cut from the eurozone, a key market for Japanese exporters, as the debt crisis spreads to bigger economies such as Spain.
At the same time, a strong yen also plays a part in affecting firms such as Sharp, by making goods more expensive to foreign buyers and cutting their profits when they repatriate foreign earnings. Since mid March this year, the yen has risen by more than 6% against the US dollar.
Unfortunately domestic demand has not grown enough to offset a decline in foreign sales either, making matters worse for Japanese firms.
Japan has been battling deflation for many years, and although a dip in prices is welcome by consumers, it can hit the economy and businesses, as buyers put off purchases in the hope of a better deal down the track.