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4 Stocks to Buy on Japan's Fresh Economic Stimulus

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Japan’s Prime Minister Shinzo Abe unveiled fresh stimulus measures to boost the country’s flagging economy on Thursday. The announcement comes after three years of sustained stimulus measures, popularly known as Abenomics. Despite such steps, the economy has failed to pick up pace.

Additionally, recent Brexit concerns have led to a substantial surge in the yen. Now, speculation is rife that the Bank of Japan (BOJ) will follow this announcement with monetary easing. This is why it would be a good idea to pick up select stocks from Japan at this point.

Surprise Fiscal Package

Prime Minister Abe’s announcement of a new stimulus package has taken most analysts and economists by surprise. Abe said that fiscal stimulus measures amounting to 13 trillion yen or $265 billion will be implemented to support Japan’s economy. Details of the measure are yet to be released. But the intention of these steps are clear, to combat a 15-year-long deflationary cycle.

Though most of the details of the package are yet to be released, one of the key measures has been announced. The government intends to raise the country’s minimum wage by 3% to encourage higher consumer expenditure. Further, there are indications of widening the spend on infrastructure. This includes increasing the size of ports and speeding up the pace of a high-speed train project.

BOJ Likely to Push Up Monetary Stimulus

Fresh fiscal stimulus measures have heightened market expectations about the BOJ widening its monetary easing measures. Ever since taking charge of the central bank, Haruhiko Kuroda has presided over a massive asset purchase program. Currently, this program amounts to a record 80 trillion yen on an annual basis. This program is one of the key initiatives Abe has undertaken to boost the economy.

Additionally, the BOJ was the world’s first central bank to introduce negative rates. However, the central bank’s annual inflation target remains elusive. Meanwhile, a series of dismal economic reports and low business confidence underline the long-term weakness plaguing the economy. Also, the recent Brexit scare and the subsequent rise in the dollar have led to calls for further action on the monetary front.

This is why market watchers expect Japan’s central bank to introduce further monetary easing measures. Increasing the size of debt purchases would be one way of going about it. This would also provide a signal that the central bank and the government were acting together to revive the economy.

Our Choices

The size of the fiscal stimulus package is creating fresh confidence among investors. Additionally, structural reforms are being introduced, such as raising the minimum wage. At the same time, expectations that the central bank will also introduce new monetary stimulus are raising hopes.

Adding stocks from Japan seems to be a good move at this point. At the same time, it is important to pick winning stocks.  

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

NTT DOCOMO, Inc. offers telecom services in Japan.

NTT DOCOMO has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 14.3% for the current year.

Internet Initiative Japan Inc. IIJI offers a comprehensive range of Internet access services and Internet-related services to customers, including corporations and other Internet service providers, in Japan.

Internet Initiative Japan has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 43.2% for the current year. Its earnings estimate for the current year has improved by 15.2% over the last 30 days.

ORIX Corporation IX is a diversified financial services institution with diverse operations in both corporate and retail finance.

ORIX has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 7.61, lower than the industry average of 11.63.

Nikon Corporation NINOY is a manufacturer and seller of optical instruments in Japan as well as in overseas markets.

Nikon has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 7.5% for the current year. It has a P/E (F1) of 19.33, which is lower than the industry average of 19.77.

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