Many companies are now announcing their earnings for the year ended March and many economists are suggesting that corporate net income was probably up 35-40%. They are also suggesting that for the current fiscal year earnings could easily climb 20-30%. We think that the market has probably already discounted or mostly discounted the expected results for the recently ended fiscal year but is just beginning to react to expected earnings growth for the current fiscal year. We should also mention that most companies are being very conservative in their estimates for the current year, for instance some exporters are using a yen rate of around JPY 90 versus the current rate of approximately JPY 98.

Eoin Treacy's view The re-rating of Japan in the eyes of international investors continues but it is worth pointing out that domestic Japanese investors, consumers and corporations were subject to even greater conditioning as a result of the decades long deflation. On the assumption that the Japanese administration will succeed in breaking the deflationary cycle, the actions and perceptions of corporations are likely to evolve considerably.

I am reminded of the maxim Donald Coxe used to describe the commodity complex from the early 2000s, “those who know it best love it least because they have been disappointed the most". Corporations are understandably slow to conclude the Yen is on a sustainable downward trajectory following years of appreciation. As we look at the technical action, despite the short-term oversold condition, the medium-term outlook remains skewed towards additional weakness. This suggests that the capacity for positive earnings surprises is likely to be high for the next few years.