For the past three years, Prime Minister Shinzo Abe could usually count on surging corporate earnings to back up the case that his policies were turning around Japan, but that is no more.
Pretax profit at the biggest companies will drop about 10 percent in the three months ending June, the biggest slump since Abe took office in late 2012, Daiwa Securities Group Inc. estimates. Investors have taken notice, with Japanese benchmarks being among the worst-performing stock indexes this year.
Behind the outlook is the stronger yen, which hurts earnings at exporters that had benefited over the three years in which the Japanese currency depreciated almost 40 percent against the dollar. The recent appreciation is prompting analysts to cut their profit estimates for companies from Toyota Motor Corp. to Fast Retailing Co. and Canon Inc.
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