Toyota Set to Rebound, Japan Investor Says

TOKYO ( TheStreet) -- Toyota ( TM) will put its car-recall issues behind it and lead the auto industry as competition with Ford ( F) heats up, according to Shuhei Abe, manager of the Hennessy Select SPARX Japan Fund ( SPXJX).

Abe also said Japan's economy will accelerate and corporate earnings are getting a big boost as its politicians come under pressure to produce growth.

The mutual fund returned 7.1% in the first quarter, trailing the MSCI Japan Index's 8.3% gain. The Hennessy Select SPARX Japan Fund outperformed the benchmark index in four of the past six calendar years, including 2008 and 2009.

Welcome to's Fund Manager Five Spot, where top mutual fund managers give their best stock picks and views on the market in a five-question format.

What is the state of the Japanese economy?

Abe: The Japanese economy has really suffered. I am not seeing strong signs of a recovery yet, but it is becoming a very important issue for the new government. The government faces an election in July so there are lots of measures to accelerate the recovery for the next few years.

How are Japanese banks faring?

Abe: Japanese banks have been damaged the least among their global competitors, but they have probably been the least aggressive in terms of growing in the domestic market. I would not bet on Japanese major banks for their future growth but at least they are stable.

The yen has strengthened versus the dollar over the past year. Can Japan thrive with the yen below 100?

Abe: Absolutely. Japanese companies have already budgeted at the yen level of 90. Even with that, the general market street estimates for the coming fiscal year ending in March 2011 say that earnings will grow by more than 50%. And estimates further say that in the year ending March 2012, earnings can grow 20% to 25% with the yen at the 90 level. So if the yen goes back up to 100, the growth of Japanese companies in general will be quite impressive. I would say they can handle the yen below 100. Whether they are happy about it is another story.

Has Japan learned to live with China as the major exporter from the region?

Abe: Most certainly. It is probably one of the biggest things that has happened over the past couple of years. Japan established "Japan Inc." after World War II, with Japan being the sole exporter, or "factory" for the U.S. The U.S. market was the only market it served. But in the past three to four years, that has completely changed, particularly after this crisis. China, including Hong Kong, has become the major customer for Japanese companies. Originally that trend started with capital goods to build the factories, but now it is more for consumer goods.

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