- Komatsu, Kubota, and Hitachi Construction Machinery face near-term pressure from U.S. tariffs, a strong yen, softer demand (especially North America), and dealer inventory corrections.
- Tariff costs are large despite partial relief from recent trade moves, with Komatsu citing about 594 billion and Kubota projecting 580
090 billion in 2026. - Earnings are sliding as volumes weaken and currency/tariff headwinds bite, prompting forecasts for sharp operating-profit declines across the group.
- OEMs are responding by shifting sourcing and production, raising prices, and cutting costs, but high U.S. steel costs and weak demand limit margin recovery.
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Japan’s Big 3 construction equipment original equipment manufacturers (OEMs)—Komatsu, Kubota, and Hitachi Construction Machinery—are under growing stress from external macro-tailwinds and internal demand cycles. Key challenges include the impact of U.S. tariffs, sustained strength of the yen, demand softness in their largest overseas market (North America), and elevated inventories that were replenished during earlier peaks.
Cost headwinds & tariffs: Komatsu forecasts ¥94.3 billion in cost impacts from U.S. tariffs, although a recent trade-truce may curb about ¥20 billion (≈US$140 million) of that burden. Kubota expects ¥80-90 billion (~US$517-581 million) in tariff costs for calendar year 2026, a sizable drag on its Farm & Industrial Machinery segment. Hitachi has seen tariff impacts in the Americas, especially as pre-tariff inventories run out, and has revised down tariff impact estimates post trade deal from about US$200 million to approximately US$150 million.
Currency movements: The strong yen continues to erode profitability when overseas revenues are translated back into yen. For example, Komatsu recorded a ¥≈344 million negative FX impact for the construction, mining & utility segment in Q1 FY2025, and noted price improvements could only partially offset lost volume. Hitachi and Kubota likewise cited adverse currency effects in their recent earnings.
Demand & inventory corrections: After earlier inventory fills, demand has softened significantly. Komatsu saw a 14.6% YoY drop in North American construction/mining/utility equipment sales in its Q1; Kubota reported a revenue decline of 11.8% in construction machinery overseas, with equipment demand cooling in North America and Europe. Hitachi saw its revenue decline ~6.7% in its first quarter ending June 30, 2025.
Sector performance divergence: Not all segments are equally affected. Komatsu’s retail finance and industrial machinery businesses showed solid profit increases (22.5% and ~43.5% respectively in Q1), partially cushioning losses from its core equipment lines. Kubota’s non-machinery segments (e.g. Water & Environment) likewise helped some stabilization amid weakness in Farm & Industrial Machinery.
Strategic responses & structural constraints: OEMs are adjusting in several ways: shifting production – e.g., Komatsu moving some U.S.-bound items from China to Thailand; increasing U.S.-based manufacturing for Kubota’s compact construction lines; raising prices; and pruning cost structures. However, constraints remain: U.S. steel costs are much higher than global averages, serving as a barrier to relocating large-scale manufacturing. Inventory corrections may limit new orders, and the ability to pass through costs may be dampened by weakening demand elasticity.
Outlook & implications: Across the Big 3, fiscal 2025 and early fiscal 2026 are expected to yield lower revenues and margin pressures compared to prior years. Komatsu anticipates ~27% drop in operating profit in year ending March 2026; Kubota forecasts full-year revenue down ~4.5% and operating profit down ~30.3%; Hitachi expects continuing challenges in its Americas segment, but net income shows some resilience.
Strategic risks and open questions:
- How aggressively can tariffs be mitigated through production relocation or trade policy? Will domestic U.S. steel pricing normalize enough to support more U.S.-localized production?
- How large is the risk of prolonged demand weakness in North America given broader capital spending trends and potential policy changes?
- Are there large latent costs in inventory write-downs, or overcapacity that could force price cutting or margin erosion?
- How resilient are non-equipment segments (finance, industrial machinery, services) in compensating losses in core OEM product segments?
- Could rising interest rates or inflation further dampen demand, especially for financing heavy equipment?
Supporting Notes
- Komatsu forecasts a 27 % decline in operating profit for the fiscal year ending March 2026 due to strong yen and tariff-driven costs; previous year profit was ¥657.1 billion and dropping to ¥478 billion for 2025/26.
- Komatsu’s Q1 FY2025 saw total revenue of US$6.3 billion, down 5.2 % YoY, with profit down ~10.6 % to US$962 million; its construction/mining/utility equipment revenue dropped 5.5 %.
- Komatsu’s North American construction/mining/utility equipment sales in Q1 fell 14.6 % YoY to US$1.5 billion, making up ~27 % of total OEM equipment sales; retail finance originations dropped 15 %.
- Komatsu anticipates US$550 million in tariff and other additional costs for FY2025, including US$350 million impact on its core equipment business.
- Kubota’s nine-month ended Sept. 30, 2025 results: consolidated revenue fell 3.2 %, operating profit down 22 % YoY; overseas farm & industrial machinery revenue decreased ~4.5 %, while construction equipment overseas declined ~11.8 %.
- Kubota forecasts its full 2025 revenue down ~4.5 % YoY to ¥2.88 trillion, operating profit down ~30.3 % to ¥220 billion.
- Hitachi’s Q1 ending June 30, 2025: revenue dropped 6.7 %, adjusted operating income down ~31.9 %, net income falling ~49.8 % YoY.
- Hitachi’s North American revenue for its first half (ending Sept. 30, 2025) fell ~1.4 % to ¥144.5 billion (~US$989 million), as pre-tariff inventories diminish; Komatsu’s H1 North American OEM sales fell 7.6 % YoY to US$3.1 billion.
- Trade deal between U.S. and Japan on July 23, 2025 reduced Japanese goods tariffs from 25 % to 15 %, giving the Big 3 an estimated US$150-200 million in savings from that change.
- Kubota expects ~¥80-90 billion (US$517-581 million) in U.S. tariff costs for 2026 and has announced price increases in North America starting in September to offset these costs.