Record Japan profits show Nikkei is primed for all-time high

Net income at Topix 500 companies rose 46% from a year earlier to a record 13.9 trillion yen (US$93bil) in the October to December quarter. — Reuters

TOKYO: Japanese companies have logged record quarterly profits in the three months that ended in December, underpinning the Nikkei 225’s advance to a near historic peak.

Net income at Topix 500 companies rose 46% from a year earlier to a record 13.9 trillion yen (US$93bil) in the October to December quarter, according to data compiled by Bloomberg.

Excluding Softbank Group Corp, whose earnings are volatile due to its heavy investment in global tech companies, profits still rose 25%.

The strong earnings suggest the rally that’s pushed major share indexes towards record highs has more room to run.

Overseas investors, from BlackRock Inc to Robeco Institutional Asset Management and Warren Buffett, have voiced bullishness towards Japanese stocks.

Surprisingly strong US economic data and a cheaper yen have bolstered exporters, including Toyota Motor Corp.

Some domestic firms are reaping the benefits of inflation, which lets them push up prices, and improving corporate governance is also making investors more bullish.

“Companies’ mindsets have changed,” said Takashi Hiroki, chief strategist at Monex Securities Inc.

“We’ll see more price hikes as companies are able to pass on cost increases, and that supports their solid earnings and higher stock prices.”

Toyota was among the firms that raised their guidance, predicting higher full-year profits due to recovering popularity in hybrid cars and robust US demand.

A strong US market helped many other Japanese companies.

Japanese firms have been able to boost profits even after the economy fell into a recession as it contracted for two straight quarters through December.

That’s because more and more firms have been able to improve their margins as lingering inflation in Japan allows companies to pass on rising costs to consumers.

Some industries saw weak results despite the overall earnings boom.

Shares of several companies in the electronics sector underperformed after they slashed their annual guidance, suggesting the long-awaited recovery in the chip industry is still patchy. — Bloomberg

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