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A Quiet End to Japan's Hottest Quarter in Years

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It's been a blistering fourth quarter for Japan and its Nikkei (NIKKEIINDICES: ^NI225  ) stock index. The third leading economy's index has been on a tear since the start of 2013, but have cracks begun to show in its rise? The Nikkei fell nearly 1% this week, and while some of the blame can be cast on Cyprus and the effects of the eurozone's economic crisis, data shows that Japan's economy is still far from reaching its zenith.

Inflation's no easy accomplishment
The Nikkei has soared over the past three months, and with the Japanese fiscal year coming to an end, it's a good time to see just how well it's done. The index experienced its best consecutive quarters over the past six months in four decades, riding the stimulus push from Prime Minister Shinzo Abe and his loose monetary policy. While many analysts project significant action from new Bank of Japan Governor Haruhiko Kuroda in the near future, recently released economic data shows that the Japanese economy still hasn't caught up to the Nikkei's lofty rise.

Japanese industrial output fell a tenth of a percent in February, while production declined 11% year over year. A weaker yen that should boost exports will help that figure, but consumer prices continue to fall in the Asian nation. Shinzo Abe's 2% inflation target won't be easy to achieve.

That hasn't hurt Japanese industrial stocks, however. Kubota (NASDAQOTH: KUBTY  ) has been on a tear this year as shares have risen more than 21% since the start of 2013. The company recently¬†ended a joint initiative with Tata Metaliks Limited, a manufacturer with whom Kubota had constructed water pipes. The project ends as Kubota looks to become a stronger international force, using the weakening yen to challenge top agricultural manufacturing competitors such as Deere (NYSE: DE  ) . Kubota has certainly won the battle for investors this year: Shares of Deere have fallen 2.3% year to date. However, the American company's advantages of size and scale mean Kubota will need to work hard to close the gap with its competitor.

Japan's rise has helped a number of stocks out, and telecom stock NTT DoCoMo's (NYSE: DCM  ) modest 2.3% gains year to date won't disappoint shareholders. It's pushing its innovative side by recently launching a trial of its Tap-de-Concier service, a Google Now-like alternative for DoCoMo-serviced mobile devices that relies on user behavior to predict and offer suggestions such as information, games, media, and more. The company plans on a full rollout once the service's trial ends in late September, something investors in this stock should keep an eye on.

The year hasn't been so kind to other Japanese corporations. Semiconductor and electronics equipment maker Advantest (UNKNOWN: ATE.DL  ) has been hit hard so far, with shares losing more than 15% year to date. The stock's dropped despite the yen's significant weakening, although it has climbed higher since bottoming out in February. Despite its overall gain in the last six months, Advantest's slim margins and recent downswing make it hard to recommend against stronger competitors in the semiconductor market.

Is Japan the right fit for your portfolio?

The Nikkei has roared higher lately, but investors are still wondering whether or not Shinzo Abe's inflation-fueled gains can be sustained. Fear not: Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

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Related Tickers

9/30/2016 2:30 AM
^NI225 $16449.84 Down -243.87 -1.46%
Nikkei 225 CAPS Rating: No stars
ATE.DL $0.00 Down +0.00 +0.00%
Advantest CAPS Rating: No stars
DCM $25.41 Up +0.17 +0.67%
NTT DoCoMo CAPS Rating: ****
DE $85.35 Up +1.49 +1.78%
John Deere CAPS Rating: ***
KUBTY $75.70 Down -1.25 -1.62%
Kubota Corp (ADR) CAPS Rating: ***