With a higher-than usual number of companies revising up their full-year guidance following the results, Chua expects high earnings visibility and strong earnings momentum to continue, supporting the recovery in Japanese equities.

The yen has strengthened since the joint currency interventions by the US and Japan, with the dollar/JPY down to 157.80 as of 7 August from a recent high of 163.86 as of 28 July. “Historically, Japanese equities and earnings have fared well alongside a weaker yen, and vice versa,” Chua said. Although the yen has risen and the Bank of Japan of Japan is taking a hawkish view on monetary policy, Chua said the Nikkei 225 benchmark of Japanese stocks has continued to stage a healthy recovery from its July lows. He thinks this is a function of healthy earnings fundamentals.

Companies’ earnings guidance continues to assume a conservative dollar/JPY rate of 152, well below current spot levels, suggesting meaningful room for foreign-exchange market-driven earnings upside, Chua said. After the July correction, the Nikkei 225 trades at a forward price/earnings ratio (P/E) of 20.7x vs a recent high of 24x. With the Nikkei 225 expected to generate a forward return on equity (ROE) of more than 12 per cent, Chua maintains a positive view on Japanese equities on healthy earnings momentum and upside from continued structural reform.

David A Meier, economist at Julius Baer, noted that the recent dual-sided yen intervention is unlikely to strengthen the yen sustainably, as the underlying causes of yen weakness remain intact: an excessively loose monetary policy that keeps the rate disadvantage wide, with concerns about political influence amid fiscal expansion.

Causal factors
Masahiko Loo, senior fixed income strategist at and Premier Wealth maintains his neutral stance on Japanese equities, Japanese Government Bond (JGB) and Japanese Yen (JPY). While is staying bullish on equities, despite renewed inflation concerns, higher rates and geopolitical risk.

“The global macroeconomic environment appears relatively robust, led by the United States and Japan,” HSBC said this week. “We retain an artificial intelligence (AI) tilt within our portfolios with overweight exposure to US, Japan and emerging market (EM) equities, where we see the most potential for growth. We are generally less optimistic toward markets with lower exposure to AI and technology, particularly those with sensitivity to energy and commodity prices.”