Japan's first-quarter earnings were strong, with earnings upgrades and share repurchases jointly supporting TOPIX

Overview

The report reviews Japan's 1Q3/27 earnings season and evaluates the Japanese equity market by combining earnings surprises, full-year guidance revisions, share repurchases, post-earnings price reactions, investor flows, and valuation and style indicators. As of August 6, 2026, 82% of relevant TOPIX constituents by market capitalization had reported, and the overall results were significantly stronger than pre-season expectations. Goldman Sachs believes that a weaker yen and conservative guidance issued by companies in the early stages of the Middle East conflict were important reasons for the increase in positive surprises.

Core views

Japanese corporate earnings fundamentals are generally strong: the proportion of positive surprises reached 64%, overall net profit surprise was +25%, and the blended first-quarter net profit year-on-year growth rate was 26 percentage points higher than pre-season consensus expectations. Full-year recurring profit guidance has been raised by about 5%, and the proportion of companies raising guidance is three times the historical average, indicating improved earnings visibility. At the same time, announced share repurchases have exceeded ¥20tn, providing shareholder return support to the market. However, post-earnings stock performance has been highly divergent, and negative surprises have been significantly penalized; foreign investors, individual investors and domestic institutions have all been net sellers recently, indicating that the short-term trading environment remains unstable.

Analysis framework

The report uses TOPIX companies with fiscal years ending in February or March as the main sample, tracks earnings progress by the number of reporting companies and market-cap coverage, and compares actual earnings with pre-season consensus expectations, companies' full-year guidance revisions and earnings performance across different sectors. It also analyzes buyback announcements, post-earnings price reactions relative to TOPIX, historical volatility, fund flows by investor category, earnings revision indices, valuation, style and strategy basket performance.

Methodology notes

• Earnings analysisEarnings surprise analysis

  Compares the differences between companies' actual recurring profit and net profit and pre-season consensus expectations.

  The proportions of companies with positive and negative surprises are used to measure the breadth of the earnings season, while the aggregate surprise magnitude reflects the extent to which overall earnings exceeded or fell short of expectations.

• Earnings growthBlended year-on-year growth analysis

  Combines reported actual results with forecasts for companies that have not yet reported to form a blended first-quarter net profit year-on-year growth rate.

  The percentage-point difference between the latest blended year-on-year growth rate and the pre-season level is used to measure the incremental impact of earnings disclosures on overall earnings growth expectations.

• GuidanceGuidance revision momentum

  Tracks companies' upward and downward revisions to full-year recurring profit guidance.

  The report observes the cumulative revision magnitude of full-year guidance, the number of companies raising and lowering guidance, and the proportion of companies raising guidance, and compares them with historical averages.

• Earnings momentumEarnings revision index

  The number of analyst forecast upgrades over the past month minus the number of downgrades, divided by the total number of forecasts.

  This indicator is used to measure the direction and breadth of market earnings expectation revisions, with a positive value indicating that forecast upgrades dominate.

• Market reactionPost-earnings relative return and volatility analysis

  Observes individual stocks' price reactions relative to TOPIX and one-day volatility after earnings or guidance announcements.

  The report compares the current earnings season with historical periods to assess pricing differences between positive and negative surprises and tail drawdown risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TOPIX

  Core covered index; the report provides explicit 3-month, 6-month and 12-month targets.

  Strengths

  Earnings surprises are significantly positive, the proportion of full-year guidance upgrades is above the historical average, and the scale of share repurchases has reached a strong level.

  Weaknesses

  Major investor categories have recently been net sellers, and post-earnings stock volatility and performance divergence remain substantial.

  Comparison

  Target levels of 4,200, 4,300 and 4,500 are all above the 4,074.93 level at the time of the report, but the implied upside is mainly moderate growth.

  Risks

  Yen appreciation, subsequent earnings falling short of expectations, a slowdown in guidance upgrades and continued fund outflows.

• Japanese export and overseas revenue-related stocks

  A weak yen is an important driver of positive earnings surprises in this earnings season.

  Strengths

  When USD/JPY is at a high level, overseas revenue translation and export competitiveness may be supported.

  Weaknesses

  Earnings are relatively sensitive to exchange rate assumptions, and exchange rate gains may mask some operating-level differences.

  Comparison

  Compared with companies mainly driven by domestic demand, their earnings are usually more directly sensitive to changes in the yen.

  Risks

  Yen appreciation or actual exchange rates deviating from the FY26-FY28 assumptions of 162/160/155.

• Japanese stocks with high buybacks

  Buyback announcement momentum during the first-quarter earnings season is notably stronger than in previous July-to-August periods.

  Strengths

  Year-to-date share repurchase announcements have exceeded ¥20tn, helping improve per-share metrics and strengthen shareholder return expectations.

  Weaknesses

  Announced scale is not the same as immediate execution scale, and buyback effectiveness still depends on implementation pace and valuation.

  Comparison

  The current announced total is 11% higher than the full-year 2025 level, showing a further strengthening of willingness to return capital.

  Risks

  Buyback execution falling short of announcements, earnings weakening or companies increasing cash retention needs again.

Key data

• Earnings disclosure progress800 companies; 67% by number of companies, 82% by market capitalizationAs of August 6, 2026, the sample consists of TOPIX constituents with fiscal years ending in February or March.
• Earnings surprise distributionPositive 64%; negative about 24%Companies with positive surprises significantly outnumber companies with negative surprises.
• Overall earnings surpriseRecurring profit +25%; net profit about +27%The table basis shows the aggregate surprise magnitude of the TOPIX sample relative to pre-season consensus expectations.
• Improvement in first-quarter net profit growthBlended year-on-year growth rose from 33% to 59%, an increase of 26 percentage pointsOverall TOPIX basis; manufacturing improved by 33 percentage points, and financials improved by 32 percentage points.
• Full-year recurring profit guidance revision+4.9%, with the number of companies raising versus lowering guidance at 116 to 10Overall TOPIX basis, approximately equal to the 5% upward revision stated in the report text.
• Share of companies raising full-year guidance15%The historical average is about 5%, showing relatively good earnings visibility in this earnings season.
• Share repurchasesYear-to-date announced total exceeds ¥20tn11% higher than the full-year announced total for 2025.
• Market indicesTOPIX 4,074.93; NKY225 65,606.71The report lists gains of 1.8% and 1.9%, respectively.
• TOPIX targets3-month 4,200; 6-month 4,300; 12-month 4,500Relative to 4,074.93, they imply upside of about 3.1%, 5.5% and 10.4%, respectively.
• Exchange rate assumptionsFY26-FY28 USD/JPY at 162/160/155A weaker yen is regarded as one of the important drivers of positive surprises in this earnings season.
• Investor flowsForeign investors -¥490bn; individual investors -¥392bn; domestic institutions -¥5bnTokyo Stock Exchange Prime Market cash equities, for the week of July 27 to 31.

Impact & implications

Stronger-than-expected earnings, upward revisions to full-year guidance and large buybacks provide fundamental and shareholder return support for the medium-term performance of Japanese equities, and the TOPIX target path also points to moderate upside. A weak yen may continue to help companies related to exports and overseas revenue, but if the exchange rate rebounds and companies fail to continue delivering positive surprises, current positive expectations may cool. Because the price penalty triggered by negative surprises is very large, portfolio management needs to place greater emphasis on individual stock earnings visibility, guidance credibility and risk control before and after earnings, rather than relying solely on a positive index-level view.

Risks

• The negative price reaction faced by stocks missing earnings expectations is at the most severe level in the past 15 years, highlighting tail drawdown risk.
• Although one-day post-earnings volatility has declined slightly from the previous earnings season, it remains high relative to historical levels.
• Foreign investors, individual investors and domestic institutions have recently all been net sellers, leaving short-term fund flows lacking support.
• Some positive surprises stem from previously overly conservative guidance, and the magnitude of earnings beats in subsequent earnings seasons may be difficult to sustain.
• If the yen appreciates significantly, it may weaken earnings support for companies related to exports and overseas revenue.
• The Middle East conflict and related macro uncertainties may still affect corporate costs, guidance and market risk appetite.

What to watch

• Whether relevant TOPIX constituents that have not yet reported can continue the trend of positive surprises dominating.
• Whether the cumulative upward revision to full-year recurring profit guidance can continue to exceed about 5%.
• Whether the proportion of companies raising full-year guidance can remain around 15% or rise further.
• Whether share repurchase announcements can translate into actual execution and sustained improvement in earnings per share.
• Whether extreme price reactions after negative earnings surprises return to historical normal levels.
• Whether fund flows from foreign investors and individual investors turn from net selling to net buying.
• Changes in USD/JPY relative to the FY26-FY28 assumptions of 162/160/155.
• Whether TOPIX can successively approach the target levels of 4,200, 4,300 and 4,500.