Japanese Stock Market: Regular Profit Growth Trend Hindered
2024-12-10
■ The impact of the decline of the US dollar against the yen is significant: the operating profit of the entire industry (excluding the financial and insurance industries) declined for the first time in seven quarters from July to September.
■ The adjustment of corporate performance forecasts is limited: Japanese corporate performance outlooks are usually adjusted upward as the quarter progresses. However, the adjustment range in this period may be relatively limited.
Although the entire industry's sales (excluding the financial and insurance industries) increased by 2.6% year-on-year, maintaining a stable growth trend, the pricing power of enterprises is still strong. Equipment investment (up 8.1% year-on-year) has also shown steady growth, mainly focusing on labor-saving investment. Still, due to the increase in variable costs, the sales operating profit margin of the manufacturing industry has dropped sharply from 8.6% in the same period last year to 7.1%, which has a negative impact on the overall operating profit growth trend. Even so, the total operating profit still reached 23.1 trillion yen, the second highest level in history from July to September, and the performance is still high.
Looking at the performance of regular profits from the perspective of capital size, large companies (capital of 1 billion yen or more) increased by 4.1% year-on-year. In comparison, medium-sized companies (capital of 100 million to 1 billion yen) decreased by 4.2%, and small companies (capital of 10 million to 100 million yen) decreased by 22.1%. Overall, companies still have some room for wage increases, but the wage increase capacity of small and medium-sized enterprises has been significantly reduced. On November 28, the Japan Trade Union Confederation approved the struggle guidelines for the 2025 Spring Struggle at the Central Committee Meeting, proposing a wage increase rate (the sum of basic salary increase and regular salary increase) of more than 5% for all companies and more than 6% for small and medium-sized enterprises. The feasibility of such goals remains to be further observed.
Japanese companies' performance forecasts are usually conservative and are often adjusted upward as the quarter progresses. Although the US dollar-yen exchange rate is higher than corporate expectations, it is not expected to be significantly adjusted upward. Although positive domestic factors such as increased income from inflation and improved capital efficiency of Japanese companies are still receiving attention, they may face direct or indirect negative impacts from the new US government's tariff increases and immigration restrictions in the first half of next year. Therefore, from the perspective of corporate performance, the upside potential of the Japanese stock market may be relatively limited. It is worth noting that the results of the Bank of Japan's short-term outlook survey released on the 13th will provide more information for analysis.
■ The adjustment of corporate performance forecasts is limited: Japanese corporate performance outlooks are usually adjusted upward as the quarter progresses. However, the adjustment range in this period may be relatively limited.
Although the entire industry's sales (excluding the financial and insurance industries) increased by 2.6% year-on-year, maintaining a stable growth trend, the pricing power of enterprises is still strong. Equipment investment (up 8.1% year-on-year) has also shown steady growth, mainly focusing on labor-saving investment. Still, due to the increase in variable costs, the sales operating profit margin of the manufacturing industry has dropped sharply from 8.6% in the same period last year to 7.1%, which has a negative impact on the overall operating profit growth trend. Even so, the total operating profit still reached 23.1 trillion yen, the second highest level in history from July to September, and the performance is still high.
Looking at the performance of regular profits from the perspective of capital size, large companies (capital of 1 billion yen or more) increased by 4.1% year-on-year. In comparison, medium-sized companies (capital of 100 million to 1 billion yen) decreased by 4.2%, and small companies (capital of 10 million to 100 million yen) decreased by 22.1%. Overall, companies still have some room for wage increases, but the wage increase capacity of small and medium-sized enterprises has been significantly reduced. On November 28, the Japan Trade Union Confederation approved the struggle guidelines for the 2025 Spring Struggle at the Central Committee Meeting, proposing a wage increase rate (the sum of basic salary increase and regular salary increase) of more than 5% for all companies and more than 6% for small and medium-sized enterprises. The feasibility of such goals remains to be further observed.
Japanese companies' performance forecasts are usually conservative and are often adjusted upward as the quarter progresses. Although the US dollar-yen exchange rate is higher than corporate expectations, it is not expected to be significantly adjusted upward. Although positive domestic factors such as increased income from inflation and improved capital efficiency of Japanese companies are still receiving attention, they may face direct or indirect negative impacts from the new US government's tariff increases and immigration restrictions in the first half of next year. Therefore, from the perspective of corporate performance, the upside potential of the Japanese stock market may be relatively limited. It is worth noting that the results of the Bank of Japan's short-term outlook survey released on the 13th will provide more information for analysis.