Financial app Zhidao noticed that in a turbulent year, the Japanese stock market has transitioned from one of the best-performing markets globally to the center of the global financial crisis. Investors are relying on strong profits to help the Japanese stock market maintain its gains in the final stages of this year.

Averaged forecasts from nine analysts surveyed from September 27 to October 7 show that although the Nikkei 225 index is unlikely to reach the record levels of July, by the end of this year it may rise by 1.3% to 39,844 points. The average forecast of seven analysts suggests that the broader Topix index will increase by 2.1% to 2,797 points, resulting in year-to-date gains for the Nikkei 225 and Topix indices to be 19% and 18%, respectively.

Analysts have been raising profit estimates for the Topix index throughout this year, with earnings per share expected to rise to around 188 points, as the strengthening yen weakens and companies pass rising costs on to consumers. As of June, the net income of Japan's largest 500 listed companies hit a historical new high of 15 trillion yen (101 billion USD).

Senior strategist Daisuke Uchiyama from Tokyo Okayama Securities stated: "There are many things worrying investors, but this has not completely disrupted their sentiment." He mentioned that the strong prospects for corporate earnings may help bolster the direction of the Japanese stock market towards December.

The biggest threat to earnings would be the rebound of the yen. As the Bank of Japan moves towards normalizing monetary policy, the yen has appreciated by 12% against the US dollar in the past three months. In the three months leading up to September 30, the Topix index saw its first quarterly loss in two years.

Meanwhile, a rebound in the Chinese stock market could divert attention away from Japan. Since the Chinese government announced a large-scale stimulus plan on September 24, the CSI 300 Index has risen by 25%, while the Topix index has increased by 0.1%.

JPMorgan's Asian investment strategy chief Alexander Wolf said: "We are still bullish on Japan structurally, as we see nominal growth and profits in Japan picking up." He mentioned that due to recent stimulus measures in China, his outlook on China is slightly more optimistic, but there is also growth potential in the Japanese stock market.

A profit revision index compiled by Goldman Sachs shows that analysts are raising profit expectations for companies more than lowering them, although there are significant differences in expectations across different industries. Analysts are optimistic about banks, while some exporters such as transportation equipment manufacturers are pessimistic.

Ikuo Mitsui, a fund manager at Aizawa Securities, stated that as the interest rate gap between the USA and Japan is narrowing at a slower pace, concerns about the yen currently pose a smaller problem for exporters. He added that companies have successfully passed higher input costs on to customers.

"Due to the strengthening yen, corporate profits are unlikely to be as bad as the market expects," Mitsui said. He is bullish on infrastructure companies like Hitachi because they are less affected by recessions.