Japanese companies have just posted record quarterly profits, but the yen’s rebound is fueling worries about just how sustainable their earnings growth will be amid weak demand in China and the risk of a slowing U.S. economy.
The murky outlook is likely to dog Japanese stocks after they suffered one of the worst crashes in history earlier this month as concerns about the Bank of Japan’s hawkish posture and fears of U.S. recession gripped the market. Companies in the Topix 500 Index of large-cap shares earn 45% of their revenue outside Japan, Bloomberg-compiled data show, and analysts estimate that each ¥1 appreciation in the Japanese currency against the dollar will reduce profits for the country’s firms by 0.4% to 0.6%.
"Japanese stock prices have had a boost from a weaker yen in recent years. If that boost is gone, the earnings picture will look less grand,” said Tadao Kimura, chief fund manager at Sumitomo Mitsui DS Asset Management.