Japan April-June Earnings Season: Rising Importance of Earnings as the AI-Led Market Sees Mild Rotation

Overview

This report discusses investment clues for Japan's April-June earnings season in the equity market. The core view is that after volatility emerged in the AI semiconductor-driven market, investors will place greater emphasis on earnings delivery, earnings guidance revisions, and the gap between share prices and fundamentals. In multiple Japanese industries, earnings remain strong while share prices have lagged, and the earnings season may become a catalyst for re-rating.

Core views

J.P. Morgan expects April-June earnings to have a greater impact on share prices than January-March earnings. AI semiconductors still have long-term growth expectations, but valuations already reflect high expectations, and if earnings slow slightly or fall below consensus, share-price volatility may rise. In contrast, valuations of IT services, software, and AI-adopting companies are relatively lagging, and if earnings are strong, they may benefit from capital rotating from AI semiconductors into non-AI sectors. Industries benefiting from lower oil prices, cost pass-through in food, and subsequent guidance upgrades in autos, defense, and banks are the main focus areas.

Analysis framework

The report combines the Bank of Japan Tankan survey, industry business sentiment DI, input price and output price DI, TOPIX sector EPS revisions, valuations, earnings announcement schedules, the proportion of company guidance revisions, buyback announcement size, and the views of J.P. Morgan sector analysts to identify sectors that may generate share-price catalysts during the earnings season.

Methodology notes

• Macroeconomic and business sentiment observationBank of Japan Tankan survey

  Assess sales and margin trends through business sentiment DI for large manufacturers and non-manufacturers, as well as input price DI and output price DI.

  The Tankan shows manufacturing sentiment improving to the highest level in eight years, supported by lower oil prices and AI semiconductor demand; however, widening gaps between margins and price pass-through in some industries suggest that better sales do not necessarily mean improved margins.

• Earnings and valuation frameworkComparison of EPS revisions and share-price performance

  Compare sector EPS revisions, share-price performance, and valuations to identify sectors with strong earnings but lagging share prices.

  The report emphasizes that industries such as capital goods, energy, and consumer goods show gaps between earnings and share-price performance, and earnings disclosures may drive capital reallocation.

• Event catalyst analysisIdentification of earnings season catalysts

  Look for potential share-price triggers around April-June earnings, 1H guidance revisions, and buyback policies.

  In April-June, full-year guidance revisions and capital policy announcements are usually limited, but management communication may provide clues for autumn 1H earnings upgrades.

Asset mapping & comparison

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

• AI semiconductors, SPE, electronic components, major electronics companies

  Existing market leadership theme that still needs to prove profit delivery capability

  Strengths

  Demand for AI servers and long-term growth expectations remain strong, and some sector analysts expect earnings to meet or exceed guidance.

  Weaknesses

  Valuations and expectations have already moved up significantly, and even a slight earnings slowdown or miss versus consensus could amplify share-price volatility.

  Comparison

  Compared with non-AI sectors, AI-related sectors have a stronger growth narrative but lower short-term valuation tolerance for disappointment.

  Risks

  AI demand may fall short of expectations, consensus may be revised down, valuations may correct, and trades may become overcrowded.

• IT services, software, AI-adopting companies

  Potential beneficiaries of rotation

  Strengths

  Valuations are relatively lagging, and if earnings are strong, they may benefit from capital rotating out of AI semiconductors.

  Weaknesses

  Some mid-sized system integrators and SaaS companies still need to prove a recovery in fundamentals.

  Comparison

  Compared with AI semiconductors, the short term depends more on earnings confirmation than on long-term narrative.

  Risks

  Renewed concerns about AI substitution, insufficient earnings surprises, and short-term share-price gains already pricing in expectations.

• Electric power and gas, transportation and logistics, materials and chemicals, construction

  Sectors benefiting from lower oil prices

  Strengths

  Falling oil prices are expected to improve costs and drive future earnings upgrades.

  Weaknesses

  Margins are still affected by input prices, price pass-through, and demand fluctuations.

  Comparison

  Compared with high-valuation growth sectors, catalysts in these industries are more tied to the cost side and guidance upgrades.

  Risks

  Oil prices rise again, raw material supply constraints, and insufficient price pass-through.

• Food

  Theme of improving cost pass-through

  Strengths

  As price increases advance, the investment environment may improve from the second half of fiscal 2026 to fiscal 2027.

  Weaknesses

  In the short term, the sector is still pressured by higher packaging material and other costs.

  Comparison

  Compared with industries that directly benefit from lower oil prices, improvement in the food sector depends more on implementing price hikes and recovering sales volumes.

  Risks

  Yen depreciation, continued cost inflation, and price hikes affecting sales volumes.

• Autos, defense, banks

  Areas to watch for autumn guidance upgrades

  Strengths

  The report believes these sectors may raise earnings guidance during the October-November 1H earnings season.

  Weaknesses

  The likelihood of immediately raising full-year guidance during April-June is usually limited.

  Comparison

  Short-term catalysts may not necessarily come from formal 1Q upgrades, but from management communication and subsequent expectations.

  Risks

  Guidance upgrades are delayed or fail to materialize, macro demand weakens, and interest-rate or policy conditions change.

Key data

• Core time windowApril-June 2026 earnings season; 1H 2026 earnings in October-November 2026The report believes that April-June earnings communication will provide the basis for expectations of autumn guidance upgrades.
• Buyback scale in the April-June 2025 earnings seasonApproximately ¥1.7 trillionThe report mentions that TOPIX companies announced about ¥1.7 trillion in share buybacks during the April-June 2025 earnings season.
• J.P. Morgan global equity research rating distributionOverweight 53%；Neutral 36%；Underweight 12%Disclosure basis is as of July 4, 2026, and percentages may not sum to 100% due to rounding.
• JPMS equity research rating distributionOverweight 51%；Neutral 37%；Underweight 12%This data comes from the rating distribution disclosure table in the report.

Impact & implications

The investment implication is that the Japanese market may shift in the short term from a single AI semiconductor theme to a more balanced earnings-validation market. Sectors with strong earnings, lagging valuations, and logic for guidance upgrades or cost improvement are more likely to attract capital attention; meanwhile, sectors whose valuations previously rose rapidly on AI expectations may face higher volatility even if earnings come in only slightly below expectations.

Risks

• Greater volatility in the AI semiconductor sector may trigger a decline in market risk appetite.
• In some industries, sales are improving while margins are deteriorating, and widening gaps between input and output prices may suppress earnings.
• Conflict in the Middle East and volatility in oil and naphtha prices may affect costs in industries such as personal care, retail, paper packaging, and food.
• A slower-than-expected recovery in China's consumer environment may affect cosmetics, sportswear, dining, and other companies with high China exposure.
• During the April-June earnings season, full-year guidance revisions and capital policy announcements are usually limited, so short-term catalysts may be weaker than expected.

What to watch

• Whether April-June earnings drive upward revisions to earnings guidance, especially in industries benefiting from lower oil prices.
• Whether AI semiconductors, SPE, electronic components, and major electronics companies can confirm continued strong earnings.
• Whether IT services, software, and AI-adopting companies deliver strong earnings and drive valuation recovery.
• Progress in cost pass-through and price-hike execution among food companies.
• Whether management teams of autos, defense, and banks signal autumn 1H earnings upgrades.
• Corporate statements on the use of remaining capital and share buybacks around the summer 2026 revision to the corporate governance code.