Earnings from the east

With one week to go before the financial year results hits full swing here in Australia, Japan is also gearing up for one of the most important financial year reporting seasons in well over a decade.

This week and the start of next week see the likes of Toyota, Sony, Nissan, Panasonic and Honda all releasing their first full year earnings data which will have been directly impacted by Abemonics and BoJ stimulus.

Bloomberg is reporting that 14 of the 27 largest corporations in Japan are expected to beat profit guidance by 5% or more. Net income is expected to surge as much at 75% for multi-nationals and 33% for domestic facing firms, as USD/JPY and EUR/JPY differentials ramp up - with Abenomics sending the yen into a 20% deflation spiral over the last 12 months.

One of the best firms to take advantage of the currency change is the world’s largest carmaker - Toyota. It is expected to have a bumper report on currencies differentials alone. Toyota themselves had estimated USD/JPY to average ¥90 with EUR/JPY at ¥120 when in actual fact the averages are more like ¥99 and ¥129.

To put this in perspective, for every yen drop versus the dollar, estimates put Toyota’s profits increasing by $340 million. That’s just a single yen change, the average sees a difference of nine on estimates. This is why expectations for Toyota’s full year profits ending March 13 is for a 72% jump to ¥1.66 trillion as better sales in the US and this massive currency change impact the bottom line.

Sony is in a similar position; after several years of lacklustre results with some surprise loss making reports thrown in, estimates are for a 28% jump in profits. One of the hardest hit by Japan’s lost decade of deflation domestically, Sony has also had to battle the likes of Apple and Samsung for market share internationally in portable music, smartphones, computing and other hand held devices - it has finished last almost every time. Will this Thursday’s results see it finally breaking out of this spiral? Estimates suggest they will.

So with inflation inching up in Japan (seen on Friday with core CPI up to 0.4% from 0% in the previous month) Abemonics next step is for the private sector to be reinvigorated and for it to pass on these profits by increasing domestic production and investment. The question is; will they do this?

What is clear is Japan still remains the most exciting place in the developed world right now. It still has plenty of upside, and with Kuroda on the newswires today, any additional information as to the direction of USD/JPY will impact the companies reporting later this week.

Domestically, this week is relatively quiet on the reporting front. Education provider Navitas is reporting tomorrow, with Transurban on Thursday and sleep disorder specialist ResMed which has 95% of its earnings coming from offshore (most of which is US facing) reports on Friday.

Moving to the open, we are calling the ASX 200 up 14 points to 5056 which will see it opening near two month highs having hit an intraday of 5062 on Friday. There is an abundance of macro-data this week: US pending home sales, consumer confidence and the big two non-farm payroll and GDP quarter-on-quarter. Australia sees building approvals, Glenn Stevens on the wires heading into cash rate decision next week, PPI data quarter-on-quarter, not to mention new home sales and private sector credit. Europe sees German retail sales, the Union’s unemployment in short a vast array of market moving moments

Moving to stock specifics, BHP looks set start the week on a positive note with its deposit receipts, suggesting the stock should add ten cents today to $34.70 (+0.30%); as iron ore hits another fresh high for winter at $132.60, even as more analysts call for it to be heading to $100 by September.

It will be an interesting trading week no doubt; top-down versus bottom-up will be the key take out of the next five days.

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