A Falling Yen and a Rising Nikkei
Feb 8th 2013 6:30PM
Updated Feb 8th 2013 7:40PM
It's been called the hottest trade on the planet, but it's not a new tech stock or surging biotech firm; it's Japan. Between new Prime Minister Shinzo Abe releasing the stimulus valve and the nation's contentious face-off with China, it's exciting times across the Pacific. The Nikkei didn't fare so well this week, however: Following last week's gains, the index shed 0.7% over the past five days, driven down by Friday's sharp 1.8% losses. What do you need to know about what's happening over in Japan?
Down goes the yen; up go stocks
Even with this downbeat week, the Nikkei has firmly entrenched in its position as one of 2013's top risers: the index has solidly outgained the Dow Jones to start the year while absolutely crushing stocks over in Europe. The Nikkei hit a four-year high on Wednesday, and the fall of the yen, which was so strong against the dollar in recent years -- a trend that had hit Japanese exports hard -- is propelling investor optimism through the roof.
Goldman Sachs estimated that Japanese exporters' profits will rise about 7% to 10% by every time the currency falls 10 yen against the dollar. Prime Minister Abe won a hand in his efforts for inflation as Bank of Japan governor Masaaki Shirakawa resigned on Wednesday, opening the door to a candidate more in line with Abe's goals and, possibly, greater investor returns in the near future.
Sony couldn't keep up the good news on Friday, however. The electronics company's shares fell about 4.4% on Thursday following a downbeat earnings report. Sony did manage to reduce its net loss to about $115 million for the most recent quarter, but analysts who had projected a profit walked away disappointed. The company stuck to its full-year 2012 forecast for profit of $1.4 billion, however, and the stock has surged recently, gaining 39% over the past three months.
Recent times haven't been so good for two Japanese telecom stocks, however. Nippon Telegraph and Telephone and its subsidiary NTT Docomo have seen shares fall hard over the past six months, losing 7.9% and 13.3%, respectively. Still, with relatively low P/Es for the sector and positive revenue trends in the recent past -- particularly as Docomo has paid down debt over the last few years -- the stocks could have value, should the Japanese economy pick up. If you're looking to capitalize on the weaker yen, however, there are better stocks around; Docomo may be a major wireless-carrier in Japan, but rising exports won't help the company much.
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The article A Falling Yen and a Rising Nikkei originally appeared on Fool.com.Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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