Photo/IllutrationToshiba Corp. Chairman Nobuaki Kurumatani announces the company’s earnings results for fiscal 2018 at a news conference in Tokyo on May 13. (Hisashi Naito)

Total net profits of First Section companies on the Tokyo Stock Exchange will likely decline for the first time in three years as the effects of the U.S.-China trade war spill across their borders.

The prediction for fiscal 2018, which ended in March, was announced by SMBC Nikko Securities Inc.

It was based on the earnings reports announced by 962 companies, or 71.5 percent of companies listed on the TSE’s First Section, by May 13 and the forecasts released by the remaining 28.5 percent.

Financial institutions were not included in the survey.

According to SMBC Nikko’s calculations, overall sales will likely hit 515 trillion yen (about $4.7 trillion), up 2.3 percent from fiscal 2017, while operating profits, which show profits from core business operations, will rise 0.4 percent to 38 trillion yen.

The expected year-on-year growth rates of sales and operating profits are much smaller than those in fiscal 2017, due mainly to China’s economic slowdown caused by trade friction with the United States.

The number of Japanese companies that marked extraordinary losses through structural reforms, such as reducing inventories or closing facilities, increased in fiscal 2018.

As a result, overall net profits are expected to tumble by 3.6 percent year on year to 29 trillion yen.

The tariff battle between the United States and China has damaged the business performances of Japanese manufacturers, such as automakers and primary materials producers.

SMBC Nikko also looked at the 962 companies’ forecasts for fiscal 2019, which ends in March 2020. It expects overall sales to rise 1.0 percent, operating profits to increase by 1.9 percent, and net profits to rebound with an 8.3-percent jump.

However, the companies are cautious about their prospects because Washington and Beijing are showing no signs of backing down from their trade war.

“We’re extremely worried that the world economy will slow down,” Hitachi Ltd. President Toshiaki Higashihara said.

Adding to the anxieties is the scheduled increase in the consumption tax rate from 8 percent to 10 percent in October.

“If consumer spending becomes sluggish, non-manufacturers, which had good business performances in fiscal 2018, will mark declines in their achievements in fiscal 2019,” said Keiichi Ito, an SMBC Nikko researcher.