Japan-based companies' earnings outlook for the second quarter

Stock price = EPS × PER, so
it is common to approach TOPIX forecasts by separating EPS and PER.

PER is basically determined by the growth rate of EPS and by financial conditions.
For a large index like TOPIX, the growth rate is not consistently high, and EPS reflects economic conditions, so PER is mainly determined by financial conditions. Japan's financial conditions are extremely rigid (unchanging). Therefore, TOPIX's PER does not fluctuate greatly and remains virtually constant. 16 times the trailing 12-month EPS. 14 times the next 12-month estimated EPS.

In other words, TOPIX price forecasts depend mainly on corporate earnings trends.
Practically, corporate earnings trends are based on either the next 12 months' estimated EPS or the trailing 12 months' EPS.
Even when we say trailing 12 months' EPS, for example, as of March 2023, the trailing 12 months' EPS is not known until around the end of May when financial statements are released. Therefore, even with trailing 12 months, you are essentially forecasting.

So how do you forecast corporate earnings?
(1) Collect analysts' forecasts for individual companies’ earnings. = Bottom-up forecast. and
(2) There is a top-down forecast approach from macroeconomic forecasts.

(1) and (2) obtaining data is difficult for individual investors.
(1) is available through paid services like IBES (Reuters), FactSet, Bloomberg Pro.
Alternatively, securities firms may aggregate or forecast on their own.

I base my estimation on data published by Nikkei and the Tokyo Stock Exchange. The TSE’s announcements are slow. Nikkei’s data are not on a trailing-12-month basis but on an announcement-based aggregation. It seems to treat the previous announcement as trailing 12 months and the next announcement as the next 12 months.

To be thorough, regarding future TOPIX EPS forecasts, I have two views. General market expectations are optimistic. However, some strategists believe that a recession will occur in the US in Q4 2023 and, accordingly, Japanese corporate earnings will deteriorate.

In the next graph, the thin red dashed line is the market expectation. The thick red dashed line is my forecast. However, I also feel my forecast is soft. My honest belief is that the thick red dashed line should trend downward.

So, how do strategists approach macro data?