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Japanse Stimulus Concerns Mount as the Nikkei Steps Back

By Dan Carroll – May 3, 2013 at 6:00PM

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Will monetary easing also ease bank lending across the Pacific?

Even the best of times need a break now or then, and that's exactly what happened to Japan's Nikkei (NIKKEIINDICES: ^NI225) index this past week. After an unparalleled red-hot start to the year, the Nikkei shed 1.5% over the past five days, backing off its recent 52-week highs. Japanese investors are still beating the competition handily this year behind the country's "Abe-nomics" monetary easing, but concerns are starting to crop up among economists and analysts in the world's third-largest economy. Let's take a look into what you need to know across the Pacific.

Caution on the rise
Japan's colossal stimulus push has ignited the markets, but plenty of concerns rage about the effect it will have on the economy. Bank lending has come under scrutiny this week, with some Bank of Japan members concerned that the lowering of interest rates could dissuade major financial institutions from lending. That would cripple Japan's push to escape from more than two decades of economic stagnation, particularly if investments are hit -- a similar blow to the one that has already hurt insurance industry profits across America.

Regulators are pushing banks to lend, in order to combat the deflation that continues to ravage the Japanese economy, but Prime Minister Shinzo Abe's push to escape the slow-growth climate faces another challenge: his nation's debt. Japan's public debt, at more than two times GDP, makes America's look minuscule by comparison, and consumes a monumental amount of tax revenue every year. Increased taxes could help the government pay that down, but that move threatens Abe's growth goals.

Some of Japan's leading companies have benefited off of the stimulus, but other leading firms have struggled despite the easy money climate. Entertainment company Nintendo (NTDOY 1.45%) has seen its shares lose more than 13% in the past six months despite recent gains in the stock. The company's flagship gaming console, the Wii U, has suffered from poor sales, and the firm received even worse news when Electronic Arts (EA 2.54%) announced this week that its football simulation series Madden NFL  will skip the Wii U for this year's title.

EA has no scheduled titles for Nintendo's console in the future, and last year's Madden on the Wii U underperformed compared to other consoles. For now, the near future's looking grim for Nintendo, as its gaming rivals prepare their own consoles to launch later this year. Fellow Japanese electronics firm Sony (SONY 0.95%), whose stock has performed much better during the last six months in gaining more than 48%, has already announced its PlayStation 4 next-generation console, and is looking to dominate the gaming market with powerful hardware and competitive pricing when it launches. Sony's last console, the PlayStation 3, came out with a hefty price tag that dissuaded early sales, a mistake the company doesn't want to repeat.

If you're looking for one languishing Japanese company to avoid, however, it's hard to beat Panasonic (PCRFY -1.26%). The firm's stock has actually done well recently in gaining more than 12% over the past month ... but don't be fooled -- this company's struggling. Panasonic recently de-listed from the NYSE due to poor trading volume, and the firm's consumer electronics business has slowed to a crawl. To its credit, Panasonic has taken steps to beef up its lagging finances recently, such as selling around $1 billion worth of stock in Japanese companies, and ramping up TV production in India to fuel emerging-market growth. Still, Panasonic's far behind leading electronics makers right now. Investors, beware.

What's ahead for the gaming industry?

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Nintendo. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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