In the day-by-day world of Wall Street today, it can be hard for investors to look beyond immediate events and trends to see the bigger picture. Japan's one of the best cases of that unfortunate reality now, as the Nikkei (NIKKEIINDICES: ^NI225) index shed more than 6% over this past week and has lost more than 9% over the past month.
Yet investors quickly have forgotten just how Japanese stocks have thrived this year. Over the last six months, the Nikkei's up 35% and has soared past other foreign indexes. Japanese markets may be undergoing a correction, but don't let the short-term blind your long-term investing strategies. Japan's cooling off over the past month won't change Prime Minister Shinzo Abe's bold monetary policy -- and investors shouldn't change their views, either.
Don't tell George Soros it's a bear market
Abe's aggressive easing has taken aim at weakening the strong yen, but Japan's volatile currency wouldn't play by the rules this week. After crossing over the 100 yen to the dollar mark earlier in May, the yen strengthened to a seven-week high against the dollar on Friday -- not something Japanese investors wanted to see. The move was more a fault of the dollar's weakness ahead of the Friday jobs report, but Abe and Japan's central bank will have to keep pressuring the yen down in future months to benefit export-reliant stocks and firms. Expect more up-and-down weeks to come for the currency.
Japan isn't waiting around for the Nikkei and the yen to get better on their own, however. The country's national pension fund announced this week that it will raise its allocation of domestic equities in its portfolio from 11% to 12%, targeting more Japanese shares to buy in a move that should boost stocks in coming months. The pension fund's also cutting its bond buying as it shifts toward equities.
At least one big name has bought in despite this month's sell-off: Billionaire investor George Soros' fund is dipping back into buying Japanese stocks after selling off some positions prior to the recent drop.
Investors in electronics stocks across the Pacific have a lot to watch in the next few weeks. Nintendo (NTDOY -1.16%) has struggled as its Wii U video game console has sold below expectations this year. The disappointment has taken its toll on the firm's stock, which has dropped more than 12% year to date -- certainly no benefactor of Japan's stimulus. Video games have retreated away from the console with developers sticking to more successful rivals and leaving Nintendo with few titles to appeal to consumers with. Nintendo has changed course by opting not to hold a large conference at next week's pivotal Electronic Entertainment Expo, or E3, a major event for the game industry that Nintendo has traditionally targeted with significance.
Is Nintendo doomed? While it may not be crushed, it's one stock that sure faces trouble, particularly from competitors. Rival Japanese electronics and game firm Sony (SONY -0.71%) has grown its lead over Nintendo in the console market throughout the current generation of consoles, and it hopes to hit another home run at E3 as rumors swirl around its next-generation PlayStation 4 gaming device. Rival Microsoft (MSFT -1.27%) is under fire for releasing details of its recently announced Xbox One -- details that included the device's limitation that users can only play games offline for 24 hours before being required to log back online. Sony hasn't released many details of its own PS4, but a strong showing at E3 could strike an early blow against Microsoft in the battle for the next generation of gaming.
Sony's more than just games and electronics, however, and the firm made news this week by signing a deal with Apple (AAPL -1.22%) to include its Sony Music label with the latter's developing music-streaming service. Apple hasn't formally released an "iRadio," as the service has been dubbed in some circles, but the company could be set to officially announce the music-streaming service at Monday's Worldwide Developer's Conference now that it has Sony Music on board and the two other major music labels -- Universal Music and Warner Music -- also signed. While Sony's still debating whether or not to spin off its entertainment division, a launch of Apple's service would open up a giant streaming audience for Sony.
Between the future of gaming and the future of music streaming, it's been a big week for Sony -- with an even bigger week ahead for investors to keep an eye on.
