Japan will continue to provide monetary stimulus in order to
combat deflation. Speaking at Jackson Hole last Saturday, Bank of
Japan (BoJ) governor Haruhiko Kuroda said monetary easing would
continue for "some time" until deflation was tackled conclusively.
Kuroda said that the current policy to tackle deflation utilizing
easy monetary policy had met with success. Speaking on the
sidelines of the global central banking conference, he said
large-scale asset purchases would continue.
However, Kuroda admitted that Japan remained doubtful about whether
the BoJ would be able to meet its inflation target of 2%. The need
to create expectations that prices will rise is crucial because it
would lead industry to increase wages. This is an important step in
Japan's struggle with deflation in the long term, Kuroda said.
Rise in Consumer Prices
The BoJ first introduced monetary stimulus measures in April last
year. The central bank promised to expand its monetary base using
asset purchases as part of a quantitative easing program. Kuroda
aims to increase consumer inflation to 2% within a two-year
timeframe. This is crucial for the economy's health in the long
term given the fact that the country had faced 15 long years of
When first introduced, monetary stimulus measures were particularly
effective. In April, Japan raised its consumption tax from 5% to
8%, the first such increase in 17 years. The Bank of Japan
estimates that this hike contributed 2 percentage points to May's
core inflation. Excluding the effect the consumption tax, consumer
inflation increased 1.3%.
Kuroda had then acknowledged that inflation would decline over the
next few months, wearing out the impact of the consumption tax
hike. As the impact of a weak yen on the cost of imports declines,
inflation is expected to dip in the months ahead.
Wage Increases Elusive
However, an increase in wages is key to the economy's well-being in
the long term. Kuroda said: "Some kind of mechanism, a 'visible'
hand, is necessary for wages to rise." Aggressive monetary stimulus
is possibly the important method being used to affect an increase
This particularly significant because growth in income is failing
to keep up with inflation. Average overall monthly earnings
increased 0.4% in June on a yearly basis, compared to a 0.6%
increase in May. Excluding fresh food, consumer prices increased
3.3% on a year-over-year basis in June. Kuroda's statement that
monetary easing would continue probably relates to the fact that a
desired increase in wages has not been achieved up to now.
At the same time, Kuroda said the Japanese economy was continuing
to improve. Stimulus measures were having a noticeable impact on
economic conditions. Labor market conditions were getting better
and investment was on the rise.
There is evidence to bear out the fact that the economy has
benefited as a result of monetary easing. Moreover, the central
bank is determined to continue stimulus measures till it achieves
its targets. Below we present three such stocks, each of which also
has a good Zacks Rank.
) is an industry leader in professional and consumer imaging
equipment and information systems. The company operates through
three business divisions. Its office segment offers products such
as copiers, complex machines and printers.
The industrial equipment segment develops, manufactures and sells
semiconductor, micrographics and optical disk filing systems.
Canon's imaging systems offers products such as digital cameras,
lenses and broadcasting equipment.
Canon holds a Zacks Rank #2 (Buy) and has expected earnings growth
of 7.3%. The forward price-to-earnings ratio (P/E) for the current
financial year (F1) is 16.
Toyota Motor Corp.
) has three business divisions: automobiles, finance and another
segment focusing on housing, information and communications. The
company recorded earnings of ¥185.34 per share ($3.64 per ADR) in
first-quarter fiscal 2015 (ending Jun 30, 2014), beating ¥177.32
per share ($3.58 per ADR) in first-quarter fiscal 2014 (ending Jun
Earnings per ADR surpassed the Zacks Consensus Estimate of $3.07.
The Japanese automaker posted consolidated net income of ¥587.8
billion ($5.76 billion) for first-quarter fiscal 2015, improving
from ¥562.2 billion ($5.68 billion) in the year-ago quarter.
The company currently holds a Zacks Rank #2 (Buy) and has expected
earnings growth of 6.4%. It has a P/E (F1) of 9.47.
) and its subsidiaries are primarily engaged in the design,
development, manufacturing and marketing of small precision motors,
mid-size motors as well as machinery and power supplies. Nidec also
produces other products, which include auto parts, pivot assemblies
The company's manufacturing operations are located primarily in
Asia and Nidec has sales subsidiaries in Asia, North America and
Europe. It also has manufacturing locations in Thailand, China,
Singapore, Indonesia and Vietnam.
Apart from a Zacks Rank #2 (Buy), Nidec has expected earnings
growth of 48.9%. It has a P/E (F1) of 22.79.
The BoJ governor has emphasized that monetary easing will continue
until economic targets are met. This is good news for the economy
and will encourage further investment, resulting in the targeted
increase in wages. This is why these three stocks are good choices
for your portfolio.
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TOYOTA MOTOR CP (TM): Free Stock Analysis
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