AI Boom and Price Hikes Lift 1 in 4 Japanese Profit Forecasts

A quarter of large Japanese companies have upgraded their net profit forecasts for the fiscal year ending March, with record-high projections by the likes of Bandai Namco Holdings and Central Japan Railway shoring up overall results amid tariff worries.

Nikkei looked at roughly 600 companies on the Tokyo Stock Exchange's Prime market that had disclosed full-year forecasts by Friday, comparing them against the companies' own projections at the end of December. The 25% of businesses with upgrades is a relatively large share for this period but on a par with last fiscal year, when profit hit all-time highs.

The revisions are drawing investor attention as a signal of confidence. Price hikes and demand related to artificial intelligence are major drivers.

Shimizu forecasts record profit after securing further profitable domestic construction and civil engineering projects, as well as efforts to pass on costs to customers that have improved margins more than expected. Despite elevated labor and other expenses, brisk demand is making it "easy to pass on costs," said Hiroaki Tomori, an executive fund manager at Mitsubishi UFJ Asset Management.

Square Enix Holdings had been forecasting profit to decline but now expects growth, thanks partly to strong video game sales to loyal customers. Bandai Namco Holdings, which previously forecast a decline in profit, upgraded its projection to an all-time high on a strong showing by its toy and hobby business -- including "Gundam" and other model kits -- along with its digital segment, which covers games. The company has been able to keep up a steady flow of customers despite inflation.

Central Japan Railway has upgraded its forecast to a roughly 10% rise in profit, reaching an all-time high, as ridership on the Tokaido Shinkansen bullet train grew more than expected, boosted by the 2025 World Expo, held in Osaka. The Chinese government's calls to avoid travel to Japan have not had a significant impact so far, according to the company.

AI-related demand is spreading beyond companies like Advantest -- which expects record profit, fueled by sales of its testing equipment -- to materials makers. Sumitomo Chemical forecasts a roughly 40% jump in profit on strong shipments of photoresist, used to form circuits on semiconductor substrates. Asahi Kasei, which supplies insulating material used in cutting-edge chips, raised its forecast for the second time this fiscal year.

Exporters are benefiting from the yen's weakness. Suzuki Motor adjusted its assumed full-year exchange rates to 149 yen to the dollar and 174 yen to the euro, from 140 and 160, respectively. With profit margins on exports improving, the automaker has pared down its projected profit drop.

Net profits for the nine months through December were down 1% on the year among companies that announced earnings by Friday. Full-year forecasts for TSE Prime companies as a whole have been upgraded to levels on a par with fiscal 2024.

"Company forecasts are still biased based on the deflationary economy of the past," said Fumio Matsumoto, chief strategist at Okasan Securities. "There's still more room on the upside."