Companies in Japan reported stellar earnings growth recently, but the underlying trend isn’t as robust as it seems, suggesting the latest results alone aren’t likely to push Japanese shares out of their narrow range.
Net profits of Topix 500 firms increased 13% from the same time a year ago to a record high, and 60% of firms beat expectations, a marked turnaround from a downbeat previous quarter, according to data compiled by Bloomberg. The picture was less rosy, however, once the impact of a boost from the still-cheap yen and one-off items was stripped out.
“Bottom-line profit was good but core business operating profit was somewhat weak,” said Rie Nishihara, chief equity strategist at JPMorgan Securities Japan Co.
Fumio Matsumoto, chief strategist at Okasan Securities Co., said that’s because operating income — a measure of what a company earns from its main business – grew just 3.3% from a year earlier. That is more than 10 percentage points less than growth in current profits, and an unusually large gap, he said.
One reason behind the big difference is a boost from a weak yen, which is included in current and net income but not in operating profits, especially at automakers and precision machine makers, Matsumoto said.
Toyota Motor Corp. reported net income of ¥2.19 trillion in the third quarter, surpassing analysts’ forecast by ¥1 trillion. But operating profit at the world’s biggest carmaker missed estimates by more than 10%.
The reason for this is Toyota’s tepid sales, which have declined for four straight quarters compared with the year-earlier period, in part hobbled by a certification scandal. An initial gain in the shares didn’t last, and Toyota has underperformed the Topix by about four percentage points since the earnings announcement.
Even so, investors said earnings have been positive overall. Excluding SoftBank Group, whose bottom line swings wildly due to its heavy investment in tech startups worldwide, net income rose 24%, the biggest increase in four quarters.
Analysts flagged pockets of strength, including banks, AI-related firms and domestic, capital spending-related firms such as construction companies.
Some of the companies whose stock did well aren’t necessarily those that announced strong results or share buybacks, suggesting the market may not have fully digested earnings, said JPMorgan’s Nishihara.
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Positive results may not have translated into higher share prices because investors are preoccupied with US levies, and investors don’t know when uncertainty over trade policy will end, market players said.
This makes it harder for the benchmarks to get out of their narrow ranges of the past six months, and stymies chances of Japanese stocks posting the world-beating gains they’ve seen in recent years.
“There was a decent number of positive surprises, and overall the earnings were reassuring,” said Kohei Onishi, senior investment strategist at Mitsubishi UFJ Morgan Stanley. “But at the moment, the stock market is focusing more on other stuff such as US tariffs.”
This article was generated from an automated news agency feed without modifications to text.
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