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Have you seen what the Japanese stock market has done lately?
After decades of doldrums, Japanese stocks are now on fire!
Since mid-November, the Japanese stock market as measured by the iShares MSCI Japan Index Fund (EWJ) is up an impressive 15%.
The source for the sudden turnaround is the change in political power.
These newly minted government officials are earnestly committed to implementing a series of new, groundbreaking economic policies.
The result?
An Attack on the Yen
And it’s an intended attack, at that!
Yes, the Japanese yen is under attack. Not from foreign creditors or foreign investors who are sick of the multi-decade deflationary recession that Japan has endured. But instead from Japanese politicians.
Specifically, this attack is coming from the Liberal Democratic Party of Japan, which had ruled Japan for nearly its entire postwar history.
It was ousted from power three years ago. However, the LDP just won in a landslide in November. This put Shinzo Abe, the prime minister from 2006 to 2007, back in charge.
One of Abe’s campaign promises was to force the Bank of Japan to buy whatever new government debt the politicians create from bigger deficits. In effect, Abe is stripping the Bank of Japan of its independence and forcing it to become a monetary tool for unlimited government spending.
Remember Reaganomics? Well it’s the ‘80s all over again but this time they’re taking place in Japan. Shinzo Abe’s vision of big government spending and easy money is designed to spur the stagnant Japanese economy and is called “Abenomics.”
The goal of the new government is to create money in quantities sufficient enough to pull Japan out of its deflationary spiral to create an inflationary environment and push the yen lower, lower, lower.
Let’s just hope Ben Bernanke isn’t taking notes and getting ideas from the …
Infinite Japanese QE … Coming Soon!
The Japanese Cabinet approved a $113 billion stimulus program and the Bank of Japan has an open-ended, unlimited commitment to buy back enough bonds, mortgage-backed securities and stocks, to double the rate of inflation to 2%.
To accomplish that, the BOJ is currently spending $145 billion a month on its version of Quantitative Easing.
To put that into perspective, our Federal Reserve is spending roughly $85 billion a month on open-market asset purchases.
I’m not a big fan of massive government spending — especially when that spending is financed with borrowed money — but the result is that the yen has been falling like a rock.
And that is VERY good news for an export-dependent country like Japan.
A recent article in the main Japanese newspaper, The Nikkei, reported that a one-yen change in the dollar/yen rate would translate into a $2.7 BILLION increase in profits for the 30 largest Japanese exporters.
Suddenly, Japanese stocks — exporters in particular — are looking extremely attractive, and I expect the Japanese market to take off.
If you wanted to add some Japanese exposure to your portfolio, there are several ETFs to choose from.
- iShares Japan Small Cap Index (SCJ)
- iShares S&P/Topix 150 (ITF)
- SPDR Russell/Nomura PRIME Japan (JPP)
- SPDR Russell/Nomura Small Cap Japan (JSC)
- WisdomTree Global Ex-U.S. Growth (DNL)
- WisdomTree Japan SmallCap Dividend (DFJ)
- WisdomTree Japan Hedged Equity Fund (DXJ)
And if you are REALLY bullish about Japan, there is a leveraged ETF that is designed to deliver double the return — both up and down — of the main Japanese stock market index: the ProShares Ultra MSCI Japan Index (EZJ).
There are also a handful of Japanese stocks that are traded on the NYSE and Nasdaq, such as Canon (CAJ), Honda (HMC), Kubota (KUB), Panasonic (PC) and Toyota (TM) to name a few.
I’m not suggesting that you rush out and buy any of these stocks or ETFs tomorrow morning. As always, timing is everything so I recommend that you wait for my buy signal in my Asian Century service.
However, Japan’s prospects are very positive and I expect Japanese equities to move higher.
Best wishes,
Tony
{ 2 comments… read them below or add one }
Debauching of a nation’s currency might seem like “good news” but the bad news is that it is never a good idea or “good news” to counterfeit or destroy the perchasing power of one’s currency. You can follow the history of a nation by the quality of its currency. A nation or empire collapses when it debases or corrupts its “money.” Frederic Bastiat wrote a nice essay titled That Which is Seen and That Which is Not Seen and the infor contained therein exposes the fallacy of looking only at the short term alleged benefits and ignoring or concealing the long term disasterous consequences. Also, fiat currency just loots A to satisfy B and that is criminal. Ignorance is bliss but it leads to the abyss.
Hello Tony. Let me get this fact straight: Everyone is giving out investment advice for this “paper,” or that other “paper” somewhere else, and are promised 10% or even 20% gain for a year or so. Now, that’s pretty good advice with no inflation and a “constant dollar” like we had during the 1800′s. But today, just buying gold or silver has produced at least 18% gain annually for 12 years, with no risk and very little broker’s fees. Until we return to “honest money,” or “constant dollars” without a “central bank” why not just continue to buy metals? Now, if this is true, and I believe it is, tell me which “stock” has gained “more than 500%” in the past 12 years? And, in addition, there is NO end in sight for gold! So, why not tell your readers to jump aboard this accelerating “gravy train,” and quit masturbating with “mini-dollars,” or other fiat, depreciating paper currency!