(Bloomberg) -- Investors are counting on solid earnings to help Japanese shares hold their gains in the final stretch of a volatile year that saw the market go from one of the world’s top performers to the epicenter of a global meltdown.

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While unlikely to revisit the record hit in July, the Nikkei 225 Stock Average may finish the year up 1.3% from its current level to 39,844, according to the average forecast of nine analysts surveyed by Bloomberg from Sept. 27 to Oct. 7. The broader Topix will tick up 2.1% to 2,797, the average estimate of seven analysts showed, bringing the annual increase to 19% for the Nikkei 225 and 18% for the Topix.

Analysts have been upgrading the Topix earnings outlook throughout this year, with forward looking earnings-per-share rising to about 188 points, as the yen’s strength wanes and companies pass on higher input costs to consumers. Net profits at Japan’s 500 biggest listed companies hit an all-time high of ¥15 trillion ($101 billion) in the quarter ending in June.

“There’s a list of things that worry investors, but that hasn’t completely ruined sentiment,” said Daisuke Uchiyama, a senior strategist at Okasan Securities Co. in Tokyo. The outlook for resilient corporate earnings may help lift Japanese stocks toward December, he said.

The biggest threat to earnings would be a resurgence in the yen, which has jumped 12% against the dollar over the past three months as the Bank of Japan moved closer toward normalizing monetary policy. The Topix suffered its first quarterly loss in two years in the three months ending September 30.

Meanwhile, China’s stock market rebound may draw attention away from Japan. Since Beijing’s bumper stimulus announcement on Sept. 24, the Shanghai Shenzhen CSI 300 Index has surged 25%, while the Topix rose 0.1%

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“We are still positive on Japan structurally as we see nominal growth and earnings moving higher,” said Alexander Wolf, the head of Asia Investment Strategy at JP Morgan Chase Bank NA. While he’s marginally more positive on China because of recent stimulus measures, Japanese equities have upside potential, he said.

Analysts have been raising their outlooks for company profits more than lowering them, though there have been notable differences across sectors, according to an earnings revision index compiled by Goldman Sachs. Banks are on the positive side while some exporters such as transport equipment makers are negative.

Concerns over the yen are posing less of a problem for exporters right now as the interest rate gap between the US and Japan narrows at a slower pace, said Ikuo Mitsui, a fund manager at Aizawa Securities Co. Companies will also successfully pass on higher input costs to customers, he added.

“There is a strong possibility that corporate earnings won’t be as bad as the market thought because of the strong yen,” said Mitsui, who favors infrastructure names including Hitachi Ltd., since they are less affected by recessions.

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