After rising 2.7% on Monday, the Nikkei declined 0.2% on
Tuesday. This is in keeping with the recent trend of Japanese
stocks slipping into bearish territory. Last Wednesday, markets
had dropped 6.4%, close to the 7.3% plunge on May 23.
Following Prime Minister Shinzo Abe's aggressive monetary easing
measures, Japanese stocks were on a six-month-long rally. This
ended with the spectacular decline on May 23. Since then,
investors have been eagerly awaiting further open market
operations from the Japanese central bank. But as of now, no such
measures seem to be in the offing.
A sustained policy of monetary easing had been the key instrument
of Abe's policy, popularly known as "Abenomics." The idea behind
was that it would boost markets as investors gained confidence.
This would ultimately positively impact the entire economy.
Fiscal measures would add to this domino effect.
But these policies can only be sustained by structural reforms
which could ensure a revival for the world's third largest
economy. The Group of Eight developed nations also emphasised
such measures in a statement released yesterday. The G8 said
measures to control the country's massive debt and structural
measures were essential for economic prosperity in the long run.
Japan's Finance Minister Taro Aso responded enthusiastically to
these comments by the G8. He said more countries were beginning
to appreciate that such policies would "contribute to the
development of the global economy."
Additionally, the dollar strengthened against the yen, rising
0.3% to 94.78. The weakening of the dollar since the latter half
of last year has been a matter of concern to many countries. This
is primarily due to concerns about similar devaluations by other
currencies. However, Economics Minister Akira Amari said such
concerns were unfounded, adding that many countries critical of
this approach have themselves gained from such measures.
Again, Japan's industrial output increased 0.9% during the month
of April. Though the situation may look slightly grim at the
moment, Abe's policies could well bear fruit in the long run. The
need of the hour is to stick to the G8's prescription of coming
up with a "credible medium-term fiscal plan."
This is why some Japanese stocks are extremely good long term
options. We suggest three such picks, all of which hold good
Zacks Rank. Automobile majors
Honda Motor Co., Ltd.
Toyota Motor Corporation
) are the first of these with expected earnings growth of 31.04%
and 44.86%, respectively.
The forward price-to-earnings Ratios (P/E) for the current
financial year (F1) for these stocks look reasonable at 10.61 and
12.43, respectively. While Honda carries a Zacks Rank #2 (Buy),
Toyota holds a Zacks Rank #1 (Strong Buy).
HONDA MOTOR (HMC): Free Stock Analysis Report
KUBOTA CORP ADR (KUB): Get Free Report
TOYOTA MOTOR CP (TM): Free Stock Analysis
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) is the third attractive pick, with a Zacks Rank #1 (Strong
Buy). Expected earnings growth for this diversified machinery
manufacturer is 17.32% and it has a P/E (F1) of 19.42.
All of these are stocks with strong fundamentals and good
earnings prospects, currently available at attractive prices. And
this is the perfect time to add them to your portfolio.