Japan’s economic output surpassed its full capacity, per a Bank of Japan (BOJ) estimate. Moreover, the output gap for the April-June quarter is the highest since the October-December quarter of 2007. Moreover, in the second quarter of 2018, Japan’s economy expanded at its fastest pace in over two years. The world’s third-largest economy registered expansion after a contraction in the prior quarter, following a rise in capital expenditure and decline in imports.
Rising business investment pushed up the country’s capex. Currently, there is a need to look beyond the success of the domestic market and diversify abroad, particularly Japan. A rising economic output gap, expanding economy and soaring capital spending mean that adding stocks from the country to your portfolio will make a great investment option.
Economic Output Beats Full Capacity
According to data by Research and Statistics Department, BOJ, output gap, an indicator of the level of economic activity, came in at 1.86 points in the second quarter of 2018. This is the highest output gap after 2.09 in the fourth quarter of 2007. Moreover, the output gap remained in the positive territory for seventh straight quarter.
Additionally, a slew of economic data released over the last few days was also encouraging. Per Japan’s Cabinet Office, consumer confidence in September increased to 43.4 points from 43.3 points in August. The Nikkei Manufacturing PMI remained unchanged at 52.5 in September, registering expansion since 2016. Any level above 50 is considered expansion.
Retail sales jumped 2.7% year over year (y-o-y) in August, higher than July’s 1.5% y-o-y increase. Retail sales posted its best y-o-y rise since last December. Moreover, housing starts increased 1.6% y-o-y in August, after declining 0.7% in the preceding month. Construction orders also rose 0.5% y-o-y in August, after plunging 9.3% in July.
VIDEO Best Q2 GDP Growth in 2 Years
According to the country’s Cabinet Office, Japan’s real GDP increased 3% in the second quarter, higher than the preliminary reading of a rise of 1.9%. Moreover, the third-largest economy expanded in the second quarter after contracting in the first quarter of 2018. Tetsufumi Yamakawa, an economist at Barclays Securities Japan, said that this trend will continue “through mid-fiscal 2019, with the economy then reaching a turning point.”
Capital expenditure, a key component of GDP, increased 3.1% in the second quarter of 2018, significantly higher than the preliminary reading of a rise of 1.3%. Capex increased at the fastest pace since the first quarter of 2015. This was possibly one of the key drivers of Japan’s economic growth in the second quarter.
Additionally, exports — a significant growth driver for Japan’s economy — remained unchanged at an increase of 0.2%. However, imports were downgraded from the previous estimate of 1% to 0.9%, improving the balance of trade.
5 Japanese Stocks to Buy Now
Japan’s economic output gap not only surpassed its full capacity, but also registered its biggest gap in a decade. Moreover, the world’s third-largest economy expanded at its fastest pace in over two years. Also, the economy witnessed a number of encouraging economic data.
In this context, we have selected five stocks that are expected to move north, following strong economic growth in Japan. However, picking winning stocks may prove difficult.
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 one 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. Moreover, these stocks also carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here . Nikon Corporation ( NINOY - Free Report) is a manufacturer and seller of optical instruments in Japan and worldwide.
Nikon has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company has expected earnings growth of 65.19% for the current year. Its earnings estimate for the current year has improved 27.2% over the last 60 days.
Suzuki Motor Corporation ( SZKMY - Free Report) is a manufacturer of automobiles, motorcycles, and marine and power products in Japan, Europe, rest of Asia, and globally.
Suzuki Motor has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 10.70% for the current year. Its earnings estimate for the current year has improved 1.2% over the last 60 days.
Sony Corporation ( SNE - Free Report) is a designer of electronic equipment, instruments and devices for the consumer, professional, and industrial markets all over the world.
Sony has a Zacks Rank #2 (Buy) and VGM Score of B. The company has expected earnings growth of 26.75% for the current year. Its earnings estimate for the current year has improved 1.5% over the last 60 days.
TDK Corporation ( TTDKY - Free Report) is a seller of electronic components in Japan, Europe, China, Asia, the Americas, and worldwide.
TDK has a Zacks Rank #1 (Strong Buy) and VGM Score of B. The company has expected earnings growth of 21.99% for the current year. Its earnings estimate for the current year has improved 3.2% over the last 60 days.
Recruit Holdings Co.,Ltd. is a provider of information services in Japan and globally.
Recruit Holdings has a Zacks Rank #2 (Buy) and VGM Score of B. The company has expected earnings growth of 16.67% for the current year. Its earnings estimate for the current year has improved 5.8% over the last 60 days.
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