Is Japan Showing You the Money?

Between its recently announced stimulus program, its spat with China, and its attempts to jump-start its economy, Japan has captured the spotlight. Given the aggressive economic moves of new Prime Minister Shinzo Abe, it's reasonable for investors to wonder whether investing in Japan can deliver solid returns, particularly when stocks are on a roll to start 2013 in the U.S. Let's see how things played out overseas over the past week.

The end of the strong yen?
The Nikkei (NIKKEIINDICES: ^NI225  ) hasn't had the greatest week in the world, managing to eke out gains of 0.5% overall despite hitting a three-week low on Wednesday. Data emerged that Japan's trade deficit hit a record $78 billion last year, hampered by a strong yen and the ongoing economic problems in Europe that have hurt exports. However, the index surged more than 2.8% today to stave off weekly losses as the yen weakened. The falling currency's good news for exports --  and with Abe committed to inflationary targets, Japan's charting a course to meet that goal.

Japanese stocks haven't shown much action on the American markets, however. Automakers Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) have waxed and waned, with the former up just a fraction for the week and the latter down more than 1%. Honda investors were hit with a piece of bad news on Monday after the company announced a recall of Odysseys and Pilots. However, both automakers should improve with a weakening yen. As Toyota has recaptured the top position in the global auto market, it looks best positioned to capitalize on monetary easing from the Bank of Japan.

Financials haven't had much of a week to write home about, either. Shares of Nomura Holdings (NYSE: NMR  ) have exploded upwards recently, but the stock lost 0.5% over the course of this past week despite a big rally on Thursday and shed 1.8% today. Still, the stock's in a good position with stimulus money ready to pour into the economy, and I'd expect this week's downturn to turn around soon.

Analysts aren't as bullish on Mizuho Financial Group (NYSE: MFG  ) , which also didn't have a great week, losing 1.8%. Despite the Bank of Japan's activity, UBS analysts downgraded the stock from "buy" to "neutral" earlier in the month.

While it's been a bit of a slow start for the Nikkei and Japanese stocks to start 2013 -- the index has fallen 0.6% so far this year -- don't expect the new administration and the Bank of Japan to sit idly while waiting for the economy to recover. Should Abe's stimulus plan take off, investors could be on the cusp of a windfall from the world's third-largest economy.


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