First-quarter results highlighted the strength of Japanese equities, with simultaneous improvements in the Earnings Surprise Index, which reflects actual earnings, and Revision Watch, which indicates the outlook. The proportion of companies issuing upward revisions exceeded the level seen in typical years, heightening expectations for the outlook for the equity market.
Following the release of first-quarter results for companies with March year-ends, 17% of TOPIX constituents excluding financial companies raised their operating profit forecasts. Upward revisions were more widespread than in typical years, suggesting that earnings are moving in a positive direction.
The Earnings Surprise Index has remained at a high level, holding above 30% most recently. It has been on an upward trend since bottoming in late March, suggesting that actual corporate earnings are exceeding market expectations.
Revision Watch improved after stagnating since March, with upward revisions to earnings forecasts for the current fiscal year becoming more widespread. The change in the vertical axis also turned positive, indicating that expectations are improving.
As both actuals and expectations are trending higher, corporate earnings results and the outlook are increasingly expected to support the performance of Japanese equities. Despite geopolitical risks and volatility in AI-related stocks, the earnings picture suggests that the upward trend may continue.