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A Falling Yen and a Rising Nikkei

It's been called the hottest trade on the planet, but it's not a new tech stock or surging biotech firm; it's Japan. Between new Prime Minister Shinzo Abe releasing the stimulus valve and the nation's contentious face-off with China, it's exciting times across the Pacific. The Nikkei (NIKKEIINDICES: ^NI225  ) didn't fare so well this week, however: Following last week's gains, the index shed 0.7% over the past five days, driven down by Friday's sharp 1.8% losses. What do you need to know about what's happening over in Japan?

Down goes the yen; up go stocks
Even with this downbeat week, the Nikkei has firmly entrenched in its position as one of 2013's top risers: the index has solidly outgained the Dow Jones to start the year while absolutely crushing stocks over in Europe. The Nikkei hit a four-year high on Wednesday, and the fall of the yen, which was so strong against the dollar in recent years -- a trend that had hit Japanese exports hard -- is propelling investor optimism through the roof.

Goldman Sachs estimated that Japanese exporters' profits will rise about 7% to 10% by every time the currency falls 10 yen against the dollar. Prime Minister Abe won a hand in his efforts for inflation as Bank of Japan governor Masaaki Shirakawa resigned on Wednesday, opening the door to a candidate more in line with Abe's goals and, possibly, greater investor returns in the near future.

Sony (NYSE: SNE  ) couldn't keep up the good news on Friday, however. The electronics company's shares fell about 4.4% on Thursday following a downbeat earnings report. Sony did manage to reduce its net loss to about $115 million for the most recent quarter, but analysts who had projected a profit walked away disappointed. The company stuck to its full-year 2012 forecast for profit of $1.4 billion, however, and the stock has surged recently, gaining 39% over the past three months.

Recent times haven't been so good for two Japanese telecom stocks, however. Nippon Telegraph and Telephone (NYSE: NTT  ) and its subsidiary NTT Docomo (NYSE: DCM  ) have seen shares fall hard over the past six months, losing 7.9% and 13.3%, respectively. Still, with relatively low P/Es for the sector and positive revenue trends in the recent past -- particularly as Docomo has paid down debt over the last few years -- the stocks could have value, should the Japanese economy pick up. If you're looking to capitalize on the weaker yen, however, there are better stocks around; Docomo may be a major wireless-carrier in Japan, but rising exports won't help the company much.

Leave it to Pro
Are you at ease...or nervous? It's been a great five-year run for investors, with the Dow and S&P at or near all-time highs. Yet fears abound. When will the next downturn hit? Will political gridlock lead to portfolio-killing inflation? To learn how to protect your portfolio, click here for free guidance from the Motley Fool Pro Academy!

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9/26/2016 2:30 AM
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