Not seen in a while: Japan's earnings surprises

Junko Kimura | Bloomberg | Getty Images

The second quarter is shaping up to be a high point for corporate Japan in recent memory, with the majority of companies beating consensus estimates in their earnings reports, compared to most other firms around the world.

According to research from Morgan Stanley, over 13 percent companies listed on Japan's broader Topix index have delivered net income above expectations for the second quarter, compared to about 4 percent on the S&P 500, while other benchmark indexes globally like the MSCI Europe are in the negative when it comes to the same measure.

"In terms of breadth, 56 percent of the Japanese companies have beaten consensus earnings estimates, while only 28 percent have missed, showing a broad-based beat," Jonathan Garner, chief Asia and emerging market equity strategist at Morgan Stanley said in a report on Monday.

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That compares to 24 percent of emerging market firms beating earnings expectations in the quarter so far, and 26 percent for the Asia-Pacific region excluding Japan; while 36 percent and 33 percent of companies in the two respective markets have missed estimates, Garner said.

Japan's financial sector, along with firms in the consumer discretionary space like the big automakers, did particularly well in the second quarter, according to Garner, who said a combination of currency weakness, asset price reflation in property and stock market gains contributed to the pickup.

"I think it [Japanese corporate earnings] is clearly related to Abenomics, and more specifically to the actions of the Bank of Japan – it's obviously a very encouraging result," Garner said.

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Japanese Prime Minister Shinzo Abe's economic- revival policies this year of massive monetary easing and hefty government spending have been credited for stoking economic activity in the world's third largest economy, which had been marred by years of sluggish domestic demand.

Last week Wednesday, Japan's biggest banks Mitsubishi UFJ Financial Group (MUFG) and Mizuho reported quarterly net profit that rose by up to 40 percent from a year earlier. The banks benefited from a rally in Japanese equities that boosted fee income from investment-trust sales and pushed up the value of their large equity portfolios, Reuters reported.

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The Topix is up nearly 38 percent this year and Garner expects the momentum to continue with a target of 1,270 by year end, which is another 7 percent upside from the current level of 1,186.

"Broadly speaking we would to expect this surge in corporate earnings to continue through to the second half of this calendar year," Garner added.

—By's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu.