Japan is emerging as the star of Asia’s latest earnings season, with most companies reporting higher-than-expected profit growth as businesses continue to benefit from Prime Minister Shinzo Abe’s economic policies.

Earnings per share, excluding some items, at 159 companies on Japan’s Topix index have beaten analyst estimates while only 97 missed, according to data compiled by Bloomberg. By comparison, in the MSCI Asia Pacific index that excludes Japan, only 74 companies topped projections versus 96 that fell short.

As red flags keep sprouting in China, no other major Asian market is looking as healthy as Japan. A stock market boom is helping Tokyo-based banks reap higher profits and the weak yen continues to bolster earnings for exporters such as Toyota Motor Corp., which on Tuesday reported record quarterly profit of $5.2 billion.

“Japan is surpassing everyone else and showing stability,” said Yoshinori Shigemi, a global market strategist in Tokyo at JPMorgan Asset Management (Japan) Ltd. “For emerging markets, it’s undeniable that economies across Asia are slowing down. It’s been going on for some time.”

The strength seen in earnings has yet to be reflected in economic indicators such as household spending, which has fallen for 14 of the past 15 months. Also, Japanese workers saw averagecompensation fall 2.4 percent in June and economists estimate gross domestic product last quarter only grew about 1 percent from a year ago.

The Abe administration has been piling pressure on Japanese companies to step up spending at home on factories and wages given how healthy corporate profits have been. Halfway into this earnings season, the number of companies posting profit growth has been double those recording declines.

David Fuller's view

People talk about the Yen as if it was in freefall but this 50-year chart of USD/JPY puts the move in perspective.  Japan had the strongest currency in the world and the US Dollar was one of the weakest, falling from ¥350 in 1971 to ¥75.35 in 4Q 2012.  Shinzo Abe finally ended this madness which was keeping Japan in its deflationary spiral.

The Yen has weakened significantly against the Dollar over the last three years and this along with other sensible moves, including tax cuts, is gradually restoring Japan’s competitiveness.  This historic chart of the Topix Index is now in a region of previous psychological resistance, established between 1993 and 2007.  This could easily provide some psychological resistance but if most of the gains are held during consolidations, and I expect they will be, this fundamental and QE-driven bull market will move higher in the months and years ahead.