Japanese stocks: Regular gains, but the manufacturing sector saw a loss

■ In terms of operating profit, the non-manufacturing industry experienced a larger year-on-year increase, while the manufacturing industry reported a loss.   
■ Due to uncertainty surrounding the US government's tariff policy, predicting the performance of export companies is challenging, and the rise in stock prices is limited.  
 
    According to corporate statistics for the January-March period released on the 2nd, the total operating profit of all industries (excluding the financial and insurance sectors) reached 28.5 trillion yen, setting a record high for this period. Although year-on-year growth was 3.8%, which is slower than the previous period's 13.5% growth, profit growth has been recorded for two consecutive quarters. In terms of capital size, large companies (with over 1 billion yen) saw a 1.7% year-on-year increase and have experienced growth for seven consecutive quarters. Medium-sized companies (100 million to 1 billion yen) increased by 8.2%, while small and medium-sized enterprises (10 million to 100 million yen) grew by 4.6%, reflecting a relatively higher growth rate. Against the backdrop of price transfer and demand expansion, the non-manufacturing industry grew by 7.0%, driven by the construction and real estate sectors. Conversely, due to intensified competition in overseas sales and rising procurement costs, the transportation machinery sector performed poorly, and the manufacturing industry faced a 2.4% loss in profit. Major automobile manufacturers conveyed strong caution that the US regime's tariff increases will negatively impact operating profits in 2026, and the uncertainty surrounding corporate performance prospects remains unresolved. 

  
    Equipment investment (up 6.4% year-on-year) returned to growth after a decline in the previous period (down 0.2% year-on-year), marking its first decrease in 15 quarters. While investment in digital infrastructure within the information and communication sector continues, the steel and food industries are also expanding production capacity, with both manufacturing (up 4.2% year-on-year) and non-manufacturing (up 7.6% year-on-year) sectors experiencing growth trends. Additionally, sales across all industries (excluding finance and insurance) increased by 4.3% year-on-year, achieving growth for 16 consecutive quarters, indicating stable growth. Despite the decline in the sales and operating profit margin of the entire industry from 7.2% in the previous period to 7.0%, it still remains high, and companies' pricing power appears stable. 

 
    On the 5th, the "Renmin University of China" announced the summary results of the sixth round of labor-management negotiations in the spring of 2025. The salary increase rate (a weighted average of the basic salary increases and regular promotion salary) for 2025 is 5.26% overall, and 4.70% for small and medium-sized enterprises with fewer than 300 employees, both exceeding the levels from the same period last year (5.08% and 4.45%). Positive factors unique to the Japanese stock market remain, due to the revenue increase effect from the normalization of inflation, improved profit margins from changes in corporate pricing behavior, and expected performance improvements driven by domestic demand recovery linked to salary increases. Furthermore, companies are actively repurchasing their shares leading up to the shareholders' meeting in June, and there are rising expectations for dividend reinvestment by institutional investors. In the short term, expectations for improvement in the stock market's fund supply and demand are increasing, and the Nikkei average may rise to around 39,000 yen to address concerns of undervaluation. However, if the opacity regarding the performance prospects of export companies due to the US government’s tariff policy remains unaddressed, stabilizing at this level may prove difficult.