Corporate financial results that hold the key to the ups and downs of Japanese stocks focus on wage increases and the ability to absorb the negative impact of the weak yen – Bloomberg

As the season for domestic companies to announce their financial results for the fiscal year ending in March begins, investors are focusing on the impact of historic wage increases and the depreciation of the yen, which are factors that increase costs for companies. For Japanese stocks to rise even higher, we need bright business outlooks for a wide range of industries, including the domestic demand sector, rather than focusing on a few export sectors such as automobiles.

The Tokyo Stock Price Index (TOPIX) has risen more than 30% over the past year, outperforming major countries across the board, including Italy (24%), the United States (23%), and Germany (14%). In addition to expectations for a shift to an inflationary economy and corporate governance reform, the weaker yen has also contributed to boosting the performance of exporting companies. In fact, the industry that had the highest rate of increase at 68% was transportation equipment, including automobiles.

Meanwhile, recently, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan Semiconductor Manufacturing Co., Ltd.), a major contract manufacturer of semiconductors, TSMC) has lowered its market outlook, leading to Semiconductor-related stocks such as Tokyo Electron fell sharply. In addition, the yen has surpassed the milestone of 155 yen against the dollar, hitting a 34-year low every day, and concerns about rising import costs for raw materials and energy are weighing on the overall upward trend in Japanese stocks.

According to Bloomberg data, TOPIX’s earnings per share (EPS) forecast for the next 12 months is expected to be 170.3 yen, an increase of 3.9% from the actual figure. In contrast, JPMorgan Securities forecasts that the net profits of TOPIX companies for the fiscal year ending March 2025 will decline by 4%. Rie Nishihara, chief Japanese stock strategist, and others say that while conservative guidance is expected for the latest financial results, there is a possibility of an upward revision.

In order for Japanese stocks to resurface following the announcement of financial results for the fiscal year ending in March, which account for approximately 60% of companies listed on the Tokyo Stock Exchange, it will be important to focus on the services, land transportation, air transportation, and retail sectors that have underperformed the TOPIX over the past year. The important point is whether domestic demand sectors such as food products show good performance plans and whether stock prices can recover.

In this year’s spring labor union, the average wage increase rate exceeded 5%, the highest level in more than 30 years. Wage increases will increase companies’ selling, general and administrative expenses, but they will also enrich household budgets, which may lead to future increases in profits for companies in the domestic demand sector. The government is calling for further wage increases in order to ensure that Japan’s economy overcomes deflation.

Wage increases are a cost burden for companies due to increased labor costs. Hiroshi Matsumoto, senior fellow at Pictet Japan, said that wage hikes are cutting into a portion of companies’ profit margins, and that this fiscal year, “I want to pay attention to how management feels about whether they can cover costs.”

The largest seasoning company Ajinomoto announced on the 22nd that it will increase the prices of household and commercial products by up to 16% starting from August 1st delivery. The company has made every effort to rationalize and improve production efficiency, but it is difficult to absorb the increased costs, so the company explains that it will be revising prices.

However, the current reality is that wage increases have not kept pace with the rapid rise in prices, and consumers are not loosening their purse strings. Real wages, which reflect price fluctuations, remained below the previous year’s level for 23 consecutive months until February. Bank of Japan announces The consumption activity index has also been negative for two consecutive quarters.

Highest growth in nominal wages in 8 months, 26th consecutive month of increase – good sign for Bank of Japan normalization

Naoki Fujiwara, senior fund manager at Shinkin Asset Management Investment Trust, said that while they were able to pass on the cost increases, “We have not yet reached a cycle in which wage increases lead to increased purchasing power, which leads to price increases.” As real wage growth turns positive in the future, if companies upwardly revise their earnings forecasts in their interim results, we predicted that buying would spread to stocks other than domestic demand.

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