The yen's steep decline has burnished the outlook for Japanese stocks, prompting analysts to raise profit forecasts for currency-sensitive exporters and foreign investors to plough $17 billion into the market, the biggest monthly inflow since 2010.
With 60 percent of Japan's listed companies focused on exports, firms ranging from camera maker Nikon to air-conditioner group Daikin Industries are basking in the prospect of a one-off currency boost and the chance to price their goods more competitively.
The yen has fallen about 11 percent against the dollar to around 89 yen since mid-November, reflecting new Prime Minister Shinzo Abe's push for aggressive policy action to weaken the local currency and revitalise the economy. Investors will be looking for signs that the yen's decline is bolstering profits when the quarterly earnings season kicks into gear next week.
"Japanese companies have been adjusting their cost base down to 78, 79 yen to the dollar world. Their cost structures are still at that level, and now their revenue structures are moving to 80-90," said Mike Newman, head of research at Macquarie.
"The market will be pricing in the leverage effect ... That's why I think the market is forecasting Japanese companies with a softer yen should start overshooting earnings," he said.
One-month earnings momentum in the broad Topix index swung back into positive territory for the first time in eight months at 3.6 percent, data from Thomson Reuters I/B/E/S shows. That means there are more analysts' upgrades than downgrades as a total of estimates for companies.
The January figure compares with -10.9 percent for the Topix last November, and with an average of -3.6 percent for U.S. S&P 500 companies in January and -3.5 percent for the pan-European STOXX Europe 600 firms.
In response to the improving outlook for Japanese companies, the share market has risen around 24 percent since mid-November when Abe first caught the attention of investors with renewed calls to aid exporters with a weaker yen.
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Foreign investors, who account for 70 percent of market trading, poured $16.9 billion into equities in December alone, the most since January 2010.
Shipbuilder Sumitomo Heavy Industries, PVC and semiconductor maker Shin-Etsu Chemcial, steelmaker JFE Holdings and construction machinery maker Komatsu are among a long list of companies pegged by brokers as best bets to benefit from the currency shift.
Analysts estimate that every one yen fall against the dollar translates into a rise of around 1 percent in combined recurring profits at all listed Japanese firms.
In the longer term, a weaker yen is crucial in helping Japanese companies compete better on price against rivals such as Korean tech giant Samsung <005930.KS> and Chinese computer firm Lenovo. Exports account for about a third of Japan's gross domestic product.
The improvement in earnings outlook has been most marked for sectors such as auto and parts makers, electronics firms, machinery companies and steelmakers, according to Thomson Reuters I/B/E/S data.
JP Morgan upgraded industrial electronics maker Toshiba two notches this week to 'overweight' from 'underweight' on expected strong earnings from the weaker yen.
The positive impact of the softer yen will have a limited impact in the October-December quarterly earnings as the yen only began easing in mid-November. But investors have been quick to jump into the market, making Japanese equities slightly pricier than their U.S. peers.
The Topix carries a 12-month forward price-to-earnings ratio of 13.6, up from 12 two months ago, although still below a five-year average of 15.4, data from Thomson Reuters Datastream showed. The S&P 500 has a forward P/E of 13, while the STOXX Europe 600 is at 11.8.
However, analysts see room for further gains if the government follows through on its push for easier policy, particularly after Bank of Japan Governor Masaaki Shirakawa steps down in April.
"I am looking for the upward earnings revision to continue and the P/E to come down," said Hidehiro Tomioka, head of equity investment at Manulife Asset Management in Tokyo.
Even with the yen at current levels, earnings in industrials and basic materials could be much stronger than expected in the financial year ending March 2014, Societe Generale said in a note this week.
SocGen estimated that Japanese companies would post an average 60 percent year-on-year increase in earnings, well above the 18 percent median forecast, if the dollar trades at an average of 90 yen throughout 2013.
But the currency remains key: "If the yen reverses, goes back to 85, or 80, then it will be a different story," cautioned Manulife's Tomioka.