The Nikkei Index has gone up nearly fifty percent since Japanese Prime Minister, Shinzo Abe initiated a new set of economic policies last December. GDP growth came in at an annualized rate of 3.5% for the first quarter of 2013. This is a near miracle for the long dormant economy in Japan. As Japan seeks to double its money supply the Yen has fallen by a fifth and exports are up four percent. If you were trading Japanese stocks and simply bought before the first of the year and rode the trend you would be up nearly fifty percent on your trade, as denominated in Yen. However, when you ante up dollars for trading Japanese stocks, you need to factor in the exchange rate. The Nikkei is up fifty percent and the Yen is down twenty percent. Let us do the math. You invested $100 in a basket of Japanese stocks by converting to Yen and then buying a stock index fund. You are up fifty percent so that comes to $150. But because the Yen is down twenty percent versus the dollar you have $120 when you convert back to dollars. This is still a good profit but not as great as fifty percent. And, make sure you factor in the cost of buying and selling Yen. For trading Japanese stocks keep track of Japanese efforts to stimulate their economy, the falling Yen, and technical analysis of the stocks you are trading.
A Three Pronged Approach to Fight Deflation
Japan has suffered two decades of deflation following a spectacular real estate and stock market boom and bust. The most recent government led by Mr. Abe is introducing legislation to make their economy more competitive. Government spending is up as a stimulus for jobs. And, the country intends to double its monetary base by next year. This latter course is already driving down the value of the Yen and making exports more competitive.
What Do You Invest in and How?
Here is a short list of big Japanese companies:
- Nippon Telephone and Telegraph
- Mitsubishi Corporation
- Honda Motor
- Mitsui and Company
- East Japan Railway
- Cannon
- Nippon Steel
- JFE Holdings
- KDDI
- Sumitomo
You will notice that the well-known names of Sony and Toyota are not on the list due to tough economic times in Japan. However, these are two companies that could well benefit from a cheaper Yen. One approach to trading Japanese stocks is to pick individual winners and losers and buy or sell short accordingly. Another is to trade a stock index and essentially trade the entire economy as an alternative to trading Japanese stocks individually. And, one can trade American Depository Receipts instead of trading Japanese stocks in Japan. ADRs trade like US stocks and are available on US markets. As the market rises trend trading in day trading may be a profitable means of trading Japanese stocks. And, of course, a contrarian approach to day trading Japanese stocks will be to wait for the market to overshoot and short everything in sight!
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