Listed companies' net profit up 64%: AI/semiconductor demand and weak yen provide tailwind

Listed companies' April-June quarter net profit up 64% to ¥19.869 trillion, driven by AI demand According to a tally by SMBC Nikko Securities, backed by AI and semiconductor demand, electrical equipment rose 96.5%, transport equipment rose 92.3% due to the weak yen effect, and the banking industry also rose 41.1% against the backdrop of the Bank of Japan's interest rate hike. For the full fiscal year ending March 2027, a double-digit profit increase of 13.3% from the previous year to ¥65.509 trillion is expected, and the market also has expectations for an upward revision to a 20% profit increase. 1

Yen falls 1% for the week as intervention effect fades; focus of renewed intervention is 160 yen In the NY market on the 14th, the yen closed 0.08% higher against the dollar at 159.37 yen, but fell about 1% for the week. While dollar selling led on July U.S. retail sales unexpectedly falling 0.6%, dollar buying-back became dominant due to higher crude oil prices and rising long-term interest rates, and the market sees 1 dollar = 160 yen as the trigger for renewed intervention. 2345

Consumption tax cut and benefit system to be unified into one bill; submission to autumn extraordinary Diet session being coordinated The government plans to make the income-linked benefit system, to be fully introduced in fiscal 2029, the main pillar of the bill, and unify it with the two-year consumption tax cut on food from 8% to 1% starting next April as a 'bridge.' With the ruling party remaining in a minority in the House of Councillors, the aim is to ask for approval or disapproval of the benefits and tax cut together and win support from opposition parties that are positive toward the benefits. 6

Nikkei average up 3,107 points for the week, rises for 4 consecutive days led by AI and semiconductors Concerns over early interest rate hikes receded due to slower growth in U.S. employment statistics and CPI, and buying concentrated in AI- and semiconductor-related stocks from the start of the week. The TOPIX updated its one-month high on the 12th. With earnings announcements having run their course, next week could see wild fluctuations depending on market sentiment toward AI-related stocks. 7

Hedge funds' yen-selling positions halve in 5 weeks, triggered by coordinated Japan-U.S. intervention Leveraged funds' net short positions in yen futures and options plunged from about 138,000 contracts at the end of June to about 63,600 contracts by August 4. The U.S. Treasury secretary expressed support for Japan's largest intervention since 2011, which involved spending $75-85 billion, and speculative unwinding proceeded at the fastest pace since 2008. 8

Experts point out that '¥50 trillion in unrealized gains' at foreign exchange special account as defense funding source is wishful thinking The unrealized gains at the foreign exchange special account have swelled to about ¥50 trillion due to the weak yen, but experts point out that this is an appraisal gain and is different from the annual surplus. Monetizing it requires selling foreign currency assets, which would effectively be currency intervention, and the surplus is already incorporated into government revenue, including defense funding sources, so the claim that it can spare the public a burden does not hold. 9