Many companies are forecasting a leveling-off of profits on a pretax basis for the current business year.
According to projections, profits will fall in the first half of the year, but a sharp pickup in the second will offset this.
This scenario is too optimistic to come into play due to a number of unfavorable factors.
First, the economy is weak and will not bottom out until next year. It is too fragile to endure drastic reforms and the structural changes advocated by Prime Minister Junichiro Koizumi will further weaken economic activity in the short run.
As another unfavorable factor, economic activity in other countries is also declining and appears unlikely to bottom out this year. This will adversely affect the earnings of Japanese companies by slowing exports.
Domestic companies are therefore expected to revise down their earnings projections one after another and eventually forecast a profit fall of around 10 percent.
The Tokyo stock market is likely to seek another bottom over the next three months because, in addition to these expected downward revisions, the high hopes pinned on the Koizumi administration will no longer provide support for stocks.
To help the market rebound, the government needs to take heavy stimulus steps and inject more public funds into banks.