Earlier today the Japanese Yen hit a 27 month low against the US dollar. The currency is falling on speculation that Japan’s new government, led by Shinzo Abe, will seek to weaken the currency in order to spur inflation in the country, and remove the economic haze that has settled on Japan for almost two decades.
If the plan to reduce the value of the currency goes ahead, one of the biggest winners will be the Japanese export sector. Well known international brands like Toyoto Motor Corporation (NYSE:TM), Sony Corporation (NYSE:SNE) (TYO:6758), and Canon Inc. (NYSE:CAJ) have made the entire world their market. They will benefit profoundly from the coming swoon in the value of the Japanese Yen.
Since Shinzo Abe was declared the winner of the election, all three of these stocks have trended upward. There have not been any profound moves in equity prices since election day. This is mainly due to the steady expectation of an Abe win, and sluggish holiday trading.
Japanese stocks were already performing well so far in 2012, and began to pick up speed as the country hobbled toward election and what looked like a clear victory for Shinzo Abe. His subsequent landslide means that he can implement almost any of the many many reforms he postulated during his campaign.
In the last three months of trading, however, Toyota Motor Corporation (NYSE:TM) (TYO:7203) went up more than 14%, and Canon Inc. (NYSE:CAJ) (TYO:7751) is up more than 15%. Sony Corporation (NYSE:SNE) (TYO:6758), facing its own problems, is down 10% for the last three months, but has gained almost 13% in the last month.
The Japanese Yen has fallen below a two year low amidst expectations that it will fall further, the weaker the currency gets, the lower Japanese exporters will be able to charge for their products abroad. That means more competition for American companies, and a possible boom in Japanese stocks.
Microsoft Corporation (NASDAQ:MSFT) will go head to head with Sony Corporation (NYSE:SNE) next year when both companies release their next generation gaming console platforms. A lower price could give Sony Corporation (NYSE:SNE) the boost it needs to win out in the console race.
The same can be said for American automobile manufacturers going head to head with Toyota Motor Corporation (NYSE:TM) (TYO:7203). Canon Inc. (NYSE:CAJ) (TYO:7751) does not have any major US competitors, but lower prices should still boost their sales.
Japanese equities look like a good pick for 2013, but beyond that there is danger. Many commentators have depicted the country’s monetary future as bleak, and most expect some kind of default. The savvy investor needs to get out of Japanese equities before anything like this occurs. The monetary chaos of a default would probably result in a couple of difficult days of trading for Japanese equities.
Japan, as long as it implements its radical monetary strategy, is looking like a great place to invest, at least going into 2013. The country probably cannot prolong this type of revolutionary terror indefinitely, and there will be a balancing at the end of the process.
The country’s exporters, meanwhile, should almost certainly strengthen in the short to medium term. It is the discovery of the boundary between this and the long term that will mark out successful investors, from their less successful contemporaries.