Japan: Weaker Dollar's Impact on Japanese Stocks

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By Andrew Morse
Staff Reporter

Out with the old and in with... the old.

The turnaround in the dollar-yen rate -- the greenback slid about 6% against the yen over the last five days -- has reinvigorated sectors that have largely been excluded from the benchmark

Nikkei

's 12% rally over the last month.

Already sectors that have been down-and-out throughout Japan's five-year downturn have gotten a quick boost. Not surprisingly, import-reliant companies got the biggest bang for the diminishing buck.

Here's a look at what's moving in the Japanese markets and why:

Retailers:

Japan's long-suffering retail sector -- it's been ground down as consumers pull their purse strings tighter in the face of a sluggish economy and higher taxes -- got a lift. Why? Because lots of goodies they sell are imported. Amit Khandwala, who manages the $13 million

Wright Equity Japan

fund

(WEJPX)

, likes ubiquitous convenience store

7-Eleven

, seen as one of the best managed companies in Japan.

Utilities:

With most internationally traded commodities denominated in dollars, it's easy to see why resource-poor Japanese utilities got a lift from the yen's new buoyancy. The surprise was the magnitude. The oil and gas index rose 5.8% Monday, fueled by expectations the yen price of oil would be cheaper. Fund managers like

Tokyo Electric Power

, the country's largest utility.

Exporters:

After leading the Nikkei rally over the past month, exporters were sold amid concern a stronger yen meant higher dollar prices and therefore weaker sales abroad. David Smith, who oversees the $7.1 million

Colonial Newport Japan

fund says selling exporters is a mistake. "A lot of these companies are immune," he says. "When was the last time you bought an American-made VCR?" He likes brand names like

Sony

and

Canon

, which are competitive at 90-95 yen to the dollar, a far cry from the current exchange rate of about 119 yen to the dollar.

Banks:

Some things never change. And a stronger yen doesn't make Japan's debt-addled banks look anymore fetching, fund managers say. Wright Equity's Khndwala says be cautious when approaching anything in Japan's financial sector.