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[TOKYO] Japan Inc's currency cookie jar may be just about empty.
That's the message in forecasts for the yen, whose three- year slide under Prime Minister Shinzo Abe underpinned the expansion of profits to an all-time high and a doubling of stock prices.
The benefits went even further: every year, big exporters such as Mitsubishi Electric Corp beat their own forecasts after making assumptions about the currency's descent that proved too conservative.
Now the tailwind is fading. Companies in the Nikkei 225 Stock Average that provide forecasts see the yen at 119.76 per dollar, according to data compiled by Bloomberg from their latest filings.
The gap between the estimates and the rate at Sept 30 was the smallest in Mr Abe's era. And strategists say the prospects for further yen declines are fading: they see it slipping less than 2 per cent by the end of 2016.
"It's best to avoid expecting a big boost from the currency for future earnings," said Junichi Misawa, chief fund manager at Sumitomo Mitsui Trust Asset Management Co in Tokyo. "It's hard to keep expecting the yen to continue weakening and at about 125 per dollar, it's already at a pretty good level. The focus going forward will be on how much actual earnings are improving."
The Bank of Japan's record stimulus drove the yen to a 13-year low in June, the same month the Nikkei 225 rallied to the highest since 1996.
Analysts at Citigroup Inc estimate that currency declines accounted for 60 per cent of recurring profit growth in the latest quarter. For Allianz Global Investors Japan Co's Kazuyuki Terao, the prospect of that ending means he'll spend more time next year talking with companies and picking individual stocks.
"The key will be choosing the right stocks and finding out why profitability is improving, or why some firms are able to grow revenue even as the whole market stagnates," said Mr Terao, the fund's Tokyo-based chief investment officer. "As earnings growth slows, shareholder payouts will be comparatively more important."
Mr Abe swept to power in 2012, vowing to create a sustainable economic revival through monetary easing, fiscal stimulus and structural reform. The Nikkei 225 is up 104 per cent since then, and companies have posted two straight years of record net income.
Now, the yen has declined less than 3 per cent in 2015, while economists are winding back expectations for further easing from BOJ Governor Haruhiko Kuroda.
That's left investors eying other drivers for equities, including Mr Abe's corporate governance reforms - but they are aimed at long-term improvements, rather than an immediate profit boost.
Analysts see Nikkei 225 companies posting 1,105 yen in earnings per share over the next 12 months, little changed since the end of August. That's in contrast to an almost uninterrupted increase that's occurred so far under Mr Abe, and for Tetsuo Seshimo, highlights a threat to the index's 14 percent advance this year.
"Companies will find it more difficult to revise earnings higher," said Seshimo, a portfolio manager at Saison Asset Management Co in Tokyo. "It's hard to imagine the market will keep rising on expectations for an even weaker currency."
The yen was at 123.24 per dollar at 9.27am Tokyo time on Thursday. That compares with Toyota Motor Corp's assumption of 118 for the period through March, and Mazda Motor Corp's 121.
Firms relying on Europe for business forecast the yen at 133.07 per euro, the data compiled by Bloomberg show. That's weaker than its current level of 130.74.
Not everyone agrees the currency's declines are over. Credit Suisse Group AG's Stefan Worrall says his firm is forecasting the yen to trade at 130 per dollar in a year's time and that currency revisions will continue to contribute to profits.
"I wouldn't suggest we're coming back to a purely stock- picking market," said Mr Worrall, Tokyo-based director of equity cash sales at Credit Suisse.
"If you have the yen moving in the next 12 months from 122 to 130, that would still be a market that has macro tailwinds. For that to happen, you'd assume there would be continuing recovery in the US and that would be important for stocks such as Fuji Heavy, Kubota, Daikin or others with exposure to the US."
The yen hasn't weakened past 130 per dollar since 2002. In June, which marked the recent lows for the yen, Mr Kuroda said the currency's strength had largely corrected, while another BOJ voting member said the weakness has led to lower consumer sentiment and higher import prices, although positives still outweigh the negatives.
Even as the yen effect fades, depressed commodity prices will continue to buoy earnings, with lower input costs boosting profits by about 6 per cent in the period through March, according to Citigroup chief Japan equity strategist Naoki Iizuka.
Still, he expects the positive impact of both the weaker yen and cheaper oil to wear off completely by the second half of next year.
"From here on out, it's companies' ability to earn revenue and profits that will be tested," said Masamitsu Ohki, the chief portfolio manager at Fivestar Asset Management Co. "The next fiscal year will be a time for Japanese firms to prove themselves with actual business results."