Quick shot: Japan quietly made waves with its corporate earnings season, helping equities push higher

While the buzz of earnings season often centers around the U.S., Japan is quietly making waves with its own impressive corporate earnings season. Initially, consensus expectations for Japanese companies were modest, with forecasts predicting 7% year-over-year earnings growth. However, as two-thirds of companies by market cap have reported their October-December results, the quarterly earnings have been meaningfully better than expected. As a result, consensus earnings growth has been revised higher to 22% year-over-year. The breadth in terms of positive earnings surprises versus misses has also rebounded after a less-than-stellar September earnings quarter.

What's fueling this earnings improvement? A key driver has been the uptick in global manufacturing activity, which has helped Japanese exporters. Consumers are also playing their part, with household spending in December rising at the fastest rate since August 2022, thanks to robust wage increases and bonuses.

Looking ahead to the rest of 2025, Japan equities remain our most preferred market within Asia. We anticipate earnings growth in the high single digits over the next few years. With over 40% of Japanese production occurring offshore and only 3% of U.S. machinery imports coming from Japan, the latter is well-positioned to navigate tariff risks better than many U.S. trading partners. Additionally, medium-term structural positives, such as reforms promoting shareholder-friendly governance like share buybacks, remain intact.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

All market and economic data as of 02/11/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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