Japanese stocks opened the earnings season against a backdrop of strong market momentum, but the unfolding conflict in the Middle East has introduced fresh uncertainty into corporate profit outlooks. The benchmark Nikkei index broke the symbolic 60,000 level on Thursday, driven in part by bullish sentiment around artificial intelligence and technology names that helped the market recover from an earlier global sell-off tied to the war.
Despite that rally, the conflict has raised questions about future inflation and the stability of oil supplies for a country that imports most of its energy. Several firms have already signalled disruptions to inputs or taken steps to raise prices after the United States-Israel war with Iran affected supply chains.
Companies including housing products maker Lixil and chemicals group Asahi Kasei have publicly reported either input constraints or price increases as a direct consequence of the conflict. Such developments have fed into analyst measures of earnings momentum: Nomura Securities' Revision Index of earnings estimates for Japan has dropped to 13, its lowest reading since September and down from 27 just before the conflict began in late February. While that marks a significant decline, the gauge remains positive - in contrast to Nomura's similar indicators for the U.S., Europe, China and emerging markets, which are in negative territory.
Market participants have nonetheless pointed to some encouraging early results. Tatsunori Kawai, chief strategist at Mitsubishi UFJ eSmart Securities, noted that strong earnings reported by consumer-facing companies - achieved despite a sharply weaker yen - mean that the March earnings season, which this week shifts focus more toward manufacturers, should be seen as a net positive. LSEG data for the Nikkei 225 showed that of the 13 index members that have reported so far, current-quarter earnings posted a 9% positive surprise.
Fast Retailing, owner of the Uniqlo brand, upgraded its full-year operating profit forecast to 700 billion yen from 650 billion yen, positioning the retailer for a fifth straight year of record operating profit. That performance sits alongside broader market gains - the Nikkei climbed an eye-catching 27% in 2025, outperforming most global peers on momentum tied to AI investment and the effects of corporate governance reforms advanced by the Tokyo Stock Exchange.
Still, analysts warn that elevated energy prices could mute further equity advances. Japan depends on the Middle East for roughly 95% of its crude oil, much of which is transported through the Strait of Hormuz - a waterway that the report says has been effectively closed by Iran owing to the conflict. UBS SuMi Trust Wealth Management cited the recent rise in oil prices when it trimmed its forecast for Japanese corporate earnings growth for the year through March 2027 to 7% from 11%.
Chisa Kobayashi, Japan equity strategist at UBS SuMi Trust, explained that their prior forecast had rested on U.S. tariffs falling out of the comparison base, creating an on-year uplift to profits. Kobayashi added that the market appears to be pricing in a 2025-style scenario dominated by higher costs and inflation driven by U.S. tariffs, rather than a COVID-19-like supply-chain shock. That view implies companies are in a better position to absorb or pass on rising costs, supporting the expectation that "A certain degree of earnings growth can still be maintained."
Nomura Asset Management's senior strategist Kota Suzuki said the market is likely to remain broadly neutral overall while being divided between winners and losers as the conflict keeps energy prices in focus. Suzuki suggested that sectors such as semiconductors could move into the positive camp and help lift the Nikkei average thanks to strong demand. Under his more bullish scenario, Suzuki said the Nikkei could reach 61,000 by year-end.
The early earnings season has thus revealed a mixed picture: consumer companies showing resilience, selective upside among manufacturers and technology firms, and macro-level risks from higher energy costs and supply-channel disruptions. Investors and analysts are now parsing company-level reports for signs of how persistent those headwinds might be and which sectors will be able to sustain profit growth as the geopolitical situation evolves.
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