3 Ways To Profit From The Coming Japanese Boom
28 years ago, everyone was talking about how great the Japanese economy was performing. Its stock market was hitting all-time high after all-time high, and investor money was flowing freely into the island nation.
Then, the market crashed.
#-ad_banner-#Capital fled like roaches running from the light. And while things have improved significantly since these dark days, the Nikkei remains the lowest valued index in all the major world markets. Investors remain afraid to expose themselves to Japanese equities.
It’s within this value-depressed environment that the greatest opportunities lie. In fact, a strong argument can be made that Japan’s expanding economy is about to boom. The smart money is already positioning itself to capture long-term profits.
Here’s why now is the best time to invest in Japan.
3 Forces Lining Up Behind Japanese Equities
1. The Weak Yen
A powerful central bank program of negative interest rates has returned the Japanese economy to a growth path. Low to negative interest rates have led to a weak currency, which promotes exports and works to lift the stock market. The Financial Times reported that net exports added a full percentage point to Japan’s annualized growth in the first quarter of 2017.
Just like Federal Reserve easing in the United States quickly ended the Great Recession, Japanese Prime Minister Shinzo Abe’s ‘Abenomics’ is acting to supercharge development. Launched in late 2012, Abenomics is a three-pronged approach to economic growth. Calling the prongs “arrows,” the Prime Minister combines monetary easing, fiscal stimulus, and structural reform.
Abenomics is extremely aggressive. In the first few weeks of the program, a 10-trillion-plus yen stimulus bill was passed with a 2% inflation goal via quantitative easing. This effort combined with structural reforms worked wonders in the stock market.
The Japanese stock market soared 55% by May 2013. The surge also spurred foreign investment, helping the economy maintain a surplus despite the import cost increase.
Today, with Japan committed to reinstating the Trans Pacific Partnership with or without the United States’ involvement, the country’s future is looking equally bright.
A side effect of Abenomics has been a dramatic uptick in Japanese tourism. The monthly average number of tourists has jumped from around 700,000 in 2012 to over 2.5 million today. Japan has a goal of 60 million annual visitors by 2020, close to triple the number in 2016.
Tourists spend money which in turn lifts the economy and stock market. In fact, 16% of the growth in Japanese consumer spending can be traced back to tourism.
The boom is driven by a combination of factors. First, Abenomics works to increase domestic confidence and development, creating greater reasons for tourists to visit. Next, Asia’s rapidly expanding middle class with money to burn are seeking new and exciting destinations to visit, and Japan fits their needs perfectly. Finally, Abe has deregulated visa rules, making it much easier to travel to the nation.
Topping it all off, the weak yen acts to increase the spending power of tourists, creating additional impetus for vacationers to visit. This becomes a self-feeding cycle as greater numbers of visitors are attracted to Japan, consumer spending increases, thereby adding fuel to the economy.
3. Chinese Growth
It may seem counterintuitive, but China’s rapidly evolving economy has a massive effect on Japan.
The one-child policy, in effect from 1979 to 2015, significantly reduced the Chinese workforce, causing wages to skyrocket. The resulting reduced supply of factory workers has forced China to automate. Much of this automation depends on Japanese innovation and robotics.
China is Japan’s largest trading partner as well as its biggest source of tourists. While inherent issues exist, as the world’s second-largest economy continues its upward swing, Japan’s economy will ride along with it.
3 Ways You Can Profit From Japan’s Boom
1. WisdomTree Japan Hedged SmallCap Equity Fund (NYSE: DXJS)
This ETF follows a dividend-weighted index of Japanese small-cap equities. What I like best about DXJS is that the ETF protects investors from currency risk between the U.S. dollar and the Japanese yen.
2. WisdomTree Japan Hedged Equity Fund (NYSE: DXJ).
This is another currency-hedged ETF that provides a compelling dividend yield. Paying over 6%, DXJ provides the investor wider exposure to Japanese stocks than DXJS.
3. ProShares UltraShort Yen (NYSE: YCS)
By far the riskiest of the ETFs listed, this commodity pool-styled instrument negatively tracks the Yen at 200%. This means that for every point the Yen index drops, this ETF climbs two points. It is sharply lower by over 10% this year. If you are a yen bear, this is your ETF.
Risks To Consider: Japan is far from perfect. Although rapidly improving, economic growth remains sluggish while facing a variety of internal and external headwinds. Always use stop loss orders and position size properly no matter how compelling an investment thesis.
Action To Take: Consider diversifying into Japan via one of the above choices. Remember, opportunity exists alongside risk.
Editor’s Note: It’s easier than you think. Using the same four-step system employed by Rockefeller himself, we’ve identified a handful of natural resource stocks that could send your profits soaring in the next few months. Learn more here.