Two straight quarters of shrinking GDP have tipped the Japanese economy into a recession. The land of the rising sun is also no longer the world’s third-largest economy amid weak consumption and falling demand in neighboring China. And yet, the Nikkei 225 index has hit a multi-decade high amid strong earnings, a weak Yen, and euphoria around AI. Last month, Japan’s exports rose by 11.9%, while imports contracted by 9.6%. So, what’s driving these gains?
The world is cautiously weaning away from China. Taiwanese chipmakers are already flocking to Japan as the country focuses on strengthening its semiconductor prowess. According to Reuters, at least nine Taiwanese chipmakers have entered Japan or expanded their presence in the country over the past two years. The trend could possibly accelerate going forward.
Global funds are already beginning to flow into Japan. According to Bloomberg, foreign investors have been net buyers of Japanese stocks for seven consecutive weeks now. Warren Buffett has been busy building up positions in Japanese companies for a while. The Nikkei 225 has soared by nearly 45% over the past year, and money sitting on the sidelines could further add fuel to the rally as FOMO sets in.
So, are these gains sustainable? Many quarters on the Street expect Japan to go through a bout of healthy inflation. Additionally, a large chunk of Japanese companies are sitting on bundles of cash while still trading at relatively inexpensive price-to-book and price-to-earnings multiples. This could also mean potential buybacks over the coming periods.
What Is the Best Japanese Stock to Buy?
Japanese names such as Tokyo Electron (OTC:TOELY), Screen Holdings (OTC:DINRF), Toyota (NYSE:TM), and Fast Retailing (OTC:FRCOF) have rallied by between 40% and 230% over the past year already. But how can a retail investor get to work on finding the next big thing in the Japanese equity space? Well, the TipRanks Comparison Tool helps in evaluating the top Japanese names based on a multitude of criteria. Here is a snapshot of some Japanese stocks offering attractive dividend yields at reasonable valuations at present.
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