This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Bet on Japan's New Boom

NEW YORK ( TheStreet ) -- After languishing for years, Japanese stocks have become red-hot.

During the past year, the Tokyo Stock Price Index climbed 25.0%. Seeing the gains, investors have flocked to Japan ETFs. In the past two months, iShares MSCI Japan Index ETF (EWJ) has recorded more than $1 billion in inflows, while WisdomTree Japan Hedged Equity (DXJ) had $800 million in flows, according to IndexUniverse.com.

The rally gained steam as it began to seem likely that Shinzo Abe would win the December election for Prime Minister. Since Abe claimed a resounding victory, stocks have soared.

Investors have applauded the new prime minister because he has pledged to lift Japan out of the stagnation that has plagued the country for decades. In his speeches, Abe has promised a massive spending program to stimulate the economy. He has also called on the Bank of Japan to increase its purchases of government bonds, a process that could lower interest rates.

Can the stock rally continue? Yes, argues Jeremy Schwartz, WisdomTree's research director. Schwartz says that Japanese stocks have reached bargain prices. During the past decade, prices of the Tokyo market fell from 2.5 times book value to about one times book. In contrast, the S&P 500 trades for 2.3 times book. "Even after the rally of the last few months, Japanese stocks are still relatively cheap," Schwartz says.

Part of what makes Schwartz bullish is the weakness of the yen, which has fallen steeply since November. Traders have been dumping the currency because they figure that bond purchases by the Bank of Japan will lower interest rates, a process that would make yen investments less appealing to foreigners.

In the past, Japanese stocks have tended to rise whenever the yen fell. The reason is that a decline in the currency makes Japanese exports cheaper for foreigners. That is an important boost for an economy that relies on many giant exporters, such as Toyota (TM - Get Report) and Canon (CAJ - Get Report).

In recent years, the yen has soared as investors sought a safe alternative to the euro and other shaky currencies. The strong currency punished Japanese exporters. But now that the yen is sinking, Japan has emerged as one of the top-performing stock markets in the world.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
EWJ $12.93 0.78%
DXJ $57.45 0.68%
NSANY $19.34 0.47%
CAJ $31.97 0.95%
HMC $33.96 7.30%

Markets

Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs