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 (SONY 1.10%) 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.
