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At first glance, Japan Inc.'s earnings look dazzling. Operating profits at the country's four biggest manufacturers quintupled in the latest quarter, relative to the same period last year. Growth in the United States and a post-tsunami rebound in Japan overwhelmed the drag from weaker economies in Europe and China. But the message is actually more sobering: the buffer from such slow-growth economies is unlikely to last.

The total annual revenues of Toyota, Nissan, Honda and Hitachi are a little less than $600-billion (U.S.), about half from outside Japan. Their combined story is pretty close to the story of the global industrial economy.

Not surprisingly, in this quarter Europe was the weak link: sales there for the big four shrank in the three months ended June 30, led by Nissan's 13 per cent decline in revenue. Sales into Asia were better, growing 23 per cent overall, but were held back by diversified industrial giant Hitachi's 15 per cent drop. Thanks to slowing demand from China, Hitachi's heavy construction equipment and power systems couldn't compensate for weak sales of LCD TVs. China's slowdown also hit global copper prices, pushing down Hitachi's sales of electronic wires and cables.

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Japan's car makers managed to restore production after the earthquake and tsunami in March, 2011, in time to catch a 24 per cent rise in second-quarter car sales in the United States. But the U.S. economy now appears to be flagging, and with it car sales.

A similar fate may await Japan Inc. in its most important market, Japan. There sales grew 44 per cent, as production revived and the government started to roll out $240-billion in reconstruction spending. Hitachi will undoubtedly reap part of that windfall, but the government is also cancelling a $1,200 subsidy for purchases of cleaner automobiles.

In sum, sales growth in both the United States and Japan should slow in the second half, while the troubles in Europe and China are far from ending. Of course, things could be worse. The four giants predict annual sales will grow just 13 per cent, with net profits rising 55 per cent. But the best part of the recovery looks to be history.

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