Invest in Japan

Is now the time to invest in Japan or will the fallout from the worse earthquake and tsunami in Japanese history need to drop the markets even further before prices bottom out? The world looks in shock at the photos and video coverage of the devastation on Japan’s main island. Just as the tsunami brought devastation to Japan and then spread across the Pacific so are the economic effects in Japan likely to spread to the rest of the world. Very basic fundamental analysis of the situation tells us that Japan will need to spend heavily on reconstruction. The explosions, fires, and risk of meltdown in several nuclear power plants raise the specter of loss of electric power even in areas not directly affected by the earthquake and tsunami. China, which sells heavily to Japan, will see its sales drop as Japan diverts assets to dealing with the disaster and then rebuilding. Major Japanese companies such as Toyota, Sony, and the like may find it hard to meet production quotas if their plants cannot get electricity. On the other hand, Japan was in much worse shape after the Second World War and grew to be an industrial powerhouse. There is not reason to believe that Japan will not recover totally from this situation. That being the case, when will the time be to invest in Japan?

When the time comes to invest in Japan just what do we invest in? The Yen may take a hit from the disaster. If Japan has open its treasury, or print money, to deal with reconstruction what will that do to the value of the Yen. If the third largest economy in the world needs to continue to keep its interest rates low in order to stimulate business will that serve to keep the Yen low? What will it do to the carry trade in Yen? What is a good investment in Japan once stocks have bottomed out? Certainly the power houses like Toyota and Sony are international in both production and sales. They may lose some production capability but have the ability to move production offshore from Japan. These companies also have proven track records in being able to manage and organize to make profits. To successfully invest in Japan and its recovery the already strong Japanese corporations may be a good bet.

How to invest in stocks of Japanese companies for US investors will typically be to invest in American Depository Receipts or Exchange Traded Funds of Japanese stocks. In each case the investor is buying and selling stocks on US stock markets instead of trying to deal with a Japanese brokerage house. Options are another good idea in a volatile market. For those holding Japanese stocks, buying puts can protect a stock position. For those wishing to profit from an eventual Japanese recovery, buying calls on the likes of Toyota and Sony might be a good bet. As usual we are not suggesting that the reader buy, sell, or invest in Japan in any way, only that all situations result in investment opportunities and that approaching the situation in a disciplined manner can lead to profits.

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