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Jitters over yen stabilization are clouding Japan earnings outlook
Even with most April to June results beating analysts’ estimates, yen volatility has left this year’s winners lagging the MSCI Japan Index by 0.5% on average the day after reporting.
Investors are taking a more cautious view of Japan’s earnings season as uncertainty about further steps to support the yen fades the impact of currency driven profit boosts for exporters, according to LiveMint Markets. The concern is that any renewed yen strengthening or volatility could pressure company margins and share prices, particularly for sectors with large foreign currency exposures such as automakers.
Societe Generale’s Frank Benzimra said the yen is a key risk to watch for Japan equities, pointing to the possibility that the Bank of Japan could act faster if the market intervention by Japan and the US loses effect. He warned that additional currency swings could weigh on stock performance.
Bloomberg Intelligence data show mixed outcomes for results that beat expectations. For the April to June quarter last year, firms with net income above estimates outperformed the MSCI Japan Index by an average of 1% on the day after results, while this year companies that beat estimates underperformed the gauge by 0.5% on average the day after reporting.
The shift is also visible in high-profile exporters, where strong results did not always translate into gains. LiveMint Markets cited examples including Honda Motor Co., which said foreign exchange added ¥91 billion to its first-quarter operating profit, as well as Canon Inc. and Takeda Pharmaceutical Co., whose shares fell after earnings, while Bloomberg Intelligence strategists cautioned that future upgrades will need stronger operating performance rather than favorable exchange-rate moves.