The strengthening yen may have sent Japanese shares into a swoon, but it isn't clear how much companies need to worry about whether a stronger currency will take a bite out of profits.
The yen has strengthened around 4 percent against the U.S. dollar so far this year, potentially frustrating expectations the Japanese currency might weaken substantially further.
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So far, earnings reports for the just completed quarter appear to be mostly in line with or above expectations, but as the yen strengthens, some are concerned about whether the strong performance can continue.
"Company by company by company, it really is spectacular. You find that almost one in two companies in the current reporting season exceeds the analyst expectations," Jesper Koll, head of Japan equity research at JPMorgan Securities Japan, told CNBC.
For example, Toyota reported its operating profit for the October-to-December period climbed nearly five times from the year-ago quarter and it raised its full year profit forecast to a record high, while Panasonic said its quarterly operating profit more than tripled from the year-earlier period, exceeding expectations after around two years of losses.
In general, "the forward guidance is very good," Koll added, but noted he's concerned about possible complacency on the policy front.
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In April of last year, as part of Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe to pull the economy out of its decades-long deflationary slump – the Bank of Japan announced a massive quantitative easing program.
The policy has had some success, with the country posting a 1.3 percent on-year rise in inflation in December, marking a more-than-five-year high. It also weakened the yen sharply, with the U.S. dollar going from fetching from around 93 yen in April before the policy was announced to around 105.44 yen in late December.
Amid the latest bout of market turmoil, the yen has strengthened, with the U.S. dollar fetching only around 101.30 yen. Before the market selloff, some forecasts had targeted the U.S. dollar at 120 yen by the end of 2014.
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Koll isn't the only one warily eyeing the yen's potential to dent earnings ahead.
"(Last year,) we had the yen massively depreciate, hence the incredible earnings you're seeing at these companies that are announcing results now," Christopher Redl, portfolio manager at Gordian Capital, told CNBC. "You don't have the currency tailwind, coming up in the next fiscal year that you had in the current fiscal year," he said.
"It all comes down to whether companies can grow at the comfortable double-digit rate that they did this year with the currency tailwinds, and that's the big question," Redl said, noting some of the promised structural reforms under Abenomics appear unlikely to materialize. Redl expects earnings ahead will depend on whether the Bank of Japan takes any further quantitative easing measures.
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To be sure, some don't think the yen level matters much for earnings. "Historically, Japanese companies make more money with the yen stronger," Nicholas Smith, a Japan strategist at CLSA, told CNBC.
He calls the U.S. dollar fetching anywhere from 95-105 yen the "Goldilocks zone," with the "breakeven" level for companies at 84 yen.
"Manufacturing might like it weaker, but that's only about 18 percent of the economy. There's no reason for anyone to push for a weaker yen. They'll do very nicely at the present level," he added.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1