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Is It Time to Invest in Japan?

The Japanese recession was short and the third largest economy in the world is growing again. Does that mean it is time to invest in Japan again? The New York Times writes about Japan’s latest recession.

The Japanese economy, the world’s third-largest, started expanding again at the end of 2014, government data showed Monday, after a painful midyear slump that had raised doubts about Prime Minister Shinzo Abe’s efforts to rekindle growth and end entrenched deflation.

The latest in what seem like countless Japanese downturns –  there have been six since 1997 – lasted just two quarters, the shortest technical definition of a recession. Yet the return to growth was more tepid than experts had predicted and may fail to erase concerns that the economy remains fundamentally fragile, despite Mr. Abe’s two-year stimulus campaign.

“The economy has escaped the worst phase and is recovering, but the pace is likely to remain extremely slow,” said Yasunari Ueno, an economist at Mizuho Securities, a Japanese brokerage firm.

The issue would appear to be the longer term health of the Japanese economy as Japan has often popped in and out of recession for nearly twenty years. And, as the article notes, the current state of the Japanese economy is on the growth side but not especially strong.

How Slow Japanese Growth?

Shinzo Abe, the Japanese prime minister, has pushed to devalue the Yen and with some success increased Japanese exports. But the success has been tepid. The Wall Street Journal says that Japanese growth misses forecasts.

The worst is likely over for Japan in the near term, economists said Monday, but Mr. Abe still faces a difficult balancing act as he tries to get prices and wages to rise at the same time. Growth last quarter was driven by exports, while sustainable expansion depends on instilling confidence in consumers who account for around 60% of the economy, and whose wages have been rising more slowly than prices for more than a year.

“I was surprised by how weak household spending was,” said Shotaro Kuga, an economist at Daiwa Institute of Research, said of the fourth quarter results. “The economy is recovering – it’s just the pace of the recovery is less than forecast.”

Fueled by exports, Japan’s gross domestic product increased at an annualized rate of 2.2% in the three months through December, government data showed Monday, well below the 3.6% growth forecast by economists.

If you are watching Japanese companies that make their money exporting products it may be time to invest in Japan. If you are looking at Japanese businesses that rely on Japanese consumer spending you may be disappointed.

Individual Cases

As with US stocks if you think it is time to invest in Japan you can pick stock indexes or individual stocks. Bloomberg writes about how Japan returns to growth.

Financial shares and oil producers led gains among industry groups. Yokohama Rubber Co. jumped 5.5 percent as the tiremaker raised its dividend forecast. Asics Corp. tumbled 10 percent after the sportswear maker projected profit that missed estimates. Kuraray Co. dropped 5.7 percent after full-year net-income forecasts disappointed analysts.

The Topix index gained 0.7 percent to 1,459.43 at the close in Tokyo, with two stocks rising for each that fell. The measure climbed 2.3 percent last week. The Nikkei 225 Stock Average advanced 0.5 percent to 18,004.77. The yen added 0.2 percent to 118.52 per dollar, strengthening a third day.

The numbers make the point. Exporters like Yokohama Rubber Co. have popped up but it is a mixed picture of winners and losers. As with all investing a sound grasp of fundamentals for individual stocks is most important when you think it is time to invest in Japan again.

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