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After rising 2.7% on Monday, the Nikkei declined 0.2% on Tuesday. This is in keeping with the recent trend of Japanese stocks slipping into bearish territory. Last Wednesday, markets had dropped 6.4%, close to the 7.3% plunge on May 23.  

Following Prime Minister Shinzo Abe’s aggressive monetary easing measures, Japanese stocks were on a six-month-long rally. This ended with the spectacular decline on May 23. Since then, investors have been eagerly awaiting further open market operations from the Japanese central bank. But as of now, no such measures seem to be in the offing.

A sustained policy of monetary easing had been the key instrument of Abe’s policy, popularly known as “Abenomics.” The idea behind was that it would boost markets as investors gained confidence. This would ultimately positively impact the entire economy. Fiscal measures would add to this domino effect.

But these policies can only be sustained by structural reforms which could ensure a revival for the world’s third largest economy. The Group of Eight developed nations also emphasised such measures in a statement released yesterday. The G8 said measures to control the country’s massive debt and structural measures were essential for economic prosperity in the long run.

Japan’s Finance Minister Taro Aso responded enthusiastically to these comments by the G8. He said more countries were beginning to appreciate that such policies would “contribute to the development of the global economy.”

Additionally, the dollar strengthened against the yen, rising 0.3% to 94.78. The weakening of the dollar since the latter half of last year has been a matter of concern to many countries. This is primarily due to concerns about similar devaluations by other currencies. However, Economics Minister Akira Amari said such concerns were unfounded, adding that many countries critical of this approach have themselves gained from such measures.

Again, Japan’s industrial output increased 0.9% during the month of April. Though the situation may look slightly grim at the moment, Abe’s policies could well bear fruit in the long run. The need of the hour is to stick to the G8’s prescription of coming up with a “credible medium-term fiscal plan.”

This is why some Japanese stocks are extremely good long term options. We suggest three such picks, all of which hold good Zacks Rank. Automobile majors Honda Motor Co., Ltd. (HMC - Analyst Report) and Toyota Motor Corporation (TM - Analyst Report) are the first of these with expected earnings growth of 31.04% and 44.86%, respectively.

The forward price-to-earnings Ratios (P/E) for the current financial year (F1) for these stocks look reasonable at 10.61 and 12.43, respectively. While Honda carries a Zacks Rank #2 (Buy), Toyota holds a Zacks Rank #1 (Strong Buy).

Kubota Corporation is the third attractive pick, with a Zacks Rank #1 (Strong Buy). Expected earnings growth for this diversified machinery manufacturer is 17.32% and it has a P/E (F1) of 19.42.

All of these are stocks with strong fundamentals and good earnings prospects, currently available at attractive prices. And this is the perfect time to add them to your portfolio.

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