Japan's Surging Exports Power the Nikkei's Rebound

Stocks have been hammered this week, with everything from the Federal Reserve's announcement decimating U.S. markets to China's manufacturing slowdown slamming Asian stocks. The one market that didn't follow the herd down has had its own demons to worry about recently, but not this week. Japan's Nikkei (NIKKEIINDICES: ^NI225  ) rebounded off of several weeks of losses, to pull in gains of more than 5% this week, getting back on track to the year's earlier rise that made investors so giddy.

Japan's climb out of decades of stagnation and a strong currency aren't anywhere close to being over; but have investors finally shaken off fears over the Nikkei's quick rise and fall in the first half of 2013?

The rising sun of exports
The weakening of the yen throughout the first half of 2013 has begun to pay off. Japanese exports rose at a two-year high rate in May behind the weak currency, showing what's possible if prime minister Shinzo Abe's plan to devalue the currency picks up steam. Several problems could hamper the cause, such as China's weakening manufacturing sector, and further sluggishness and contraction from Europe. But with the vital U.S. market on the upswing, Japan's export situation is looking a lot better than many nations'.

That should pay off well for investors in export-heavy stocks, such as leading Japanese manufacturers. Already, more Japanese companies are predicting profit growth this year, even with the Nikkei's swing lower in the past month. Japan's Liberal Democratic Party is also planning on promoting corporate tax breaks soon, hoping to drive down one of the world's highest corporate tax rates. If such a measure succeeds, it'll mean growth in corporate investment that should help investors.

Still, the yen's pulled off of its earlier multi-year lows recently, and the Bank of Japan will need to continue its easing. Federal Reserve Chairman Ben Bernanke's words that America's quantitative easing could end soon, with the U.S. economy's uptick, may be a blessing in disguise for Japan. While American markets didn't react well to the announcement, a reduction in American easing promotes a stronger dollar, weakening the yen by comparison.

Considering how important the U.S. market is to Japan -- exports thrived in May, primarily due to a 16.3% rise in American exports -- Japan's economy and markets are sitting pretty right now.

That's not going over well with some U.S. auto companies, considering that a weak yen will fuel the success of their Japanese rivals. Ford (NYSE: F  ) CEO Alan Mulally called out Japan on Thursday, accusing the nation of manipulating its currency in order to benefit exporters. Ford's dueling Japanese companies, both in the U.S. and in China, where the company's investing nearly $5 billion in spending in the hopes of boosting market share.

However, the weak yen hasn't helped Toyota (NYSE: TM  ) and other companies in China, where the ongoing war of words between Japan and China over the disputed Senkaku Islands have hurt Japanese automakers. Toyota lost more than 6% in Chinese sales in April, and nearly 12% in March due to Chinese backlash against Japanese companies. Still, Toyota's quarterly profit roared last quarter, and the stock has jumped more than 28% this year, even with the Nikkei's recent slump.

However, a weaker yen does allow Japanese automakers to undercut American and other rivals on pricing, and still make a profit. Nissan's (NASDAQOTH: NSANY  ) quickly taken advantage of this line of thinking, cutting prices on seven different models in order to get the jump on other Japanese carmakers. The move's paid off so far, as Nissan's American sales climbed 25% in May, with its Altima sedan passing Ford's Fusion in sales for the month. Honda's (NYSE: HMC  ) joining the party, as well. The Japanese automaker expects profit to jump 58% this fiscal year, and the company reported a 74% profit gain last year.

If this trend keeps up, Japanese automakers -- and their shareholders -- will be driving away with huge gains in the near future.

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