Despite surging oil prices, Japanese companies have posted their strongest earnings outperformance in five years, bolstering confidence that robust profit growth across various industries will extend the stock market's rally beyond artificial intelligence-related sectors.

Data shows that during the three months ending in June, approximately 71% of local firms exceeded analyst profit expectations. The combined net profit of the 500 largest companies surpassed 21 trillion yen ($132 billion), breaking the previous record of roughly 18 trillion yen set a year earlier.

Corporate profitability has also improved significantly, with the profit margin of Topix constituent companies projected to reach a record 9.3%, the highest level since comparable data became available more than three decades ago. This suggests the Japanese equity market's uptrend is poised to enter a new phase.

The previous quarter's gains were concentrated in technology and AI-related sectors, but the latest earnings season indicates that profit growth is broadening as companies successfully pass rising costs onto customers. "It's not just exporters and semiconductor-related firms beating expectations," said Hiroki Takei, strategist at Resona Holdings. "We're seeing domestic demand-driven companies also deliver better-than-expected results. Compared to the past, investors are broadening their focus, and I expect this trend to continue."