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Japan's Household Spending Hits 3-Year High: 4 Picks

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Household spending in the third-largest economy in the world, Japan, surged to its highest level in the last three years. Such upbeat data from Japan allayed fears that the Asian giant’s economic growth was cooling off. Further, despite being ravaged by typhoons, heat waves, higher-than-usual rainfall and an earthquake, Japanese households continued to raise spending.

This can be attributed to heavy summer bonuses which are handed out to Japan’s workers. Under such circumstances, investing in stocks from Japan that benefit from high consumer spending seems prudent.

Summer Bonuses Boost Household Spending

Per the latest data on Oct 5, household spending in Japan increased 2.8% in August to its highest level since 2015. Japanese households spent the summer bonuses they received in the period on luxury items. Many Japanese firms hand out summer bonuses in June or July which resulted in increased spending on cars, air-conditioners and fancy electronics items.

Moreover, labor cash earnings in August jumped 0.9%, marking a 1.3% rise from the same period, last year. Also, base pay rose 1.4% year over year to its best level since 1997. Per Hiroaki Muto, the chief economist at Tokai Tokyo Research Center, a better-than-expected level of household spending despite rough weather points at a “virtuous cycle" in which wages witness a steady rise. Lastly, robust domestic demand overpowered trade war woes in Japan in August.

Japan’s GDP The Highest in 2 Years

Per Japan’s Cabinet Office, the country’s real GDP witnessed a rise of 3% in the second quarter of 2018. Such a rise follows a contraction that the Japanese economy witnessed in the first quarter.

Overall capital expenditure increased 3.1% in the second quarter of 2018, surpassing the preliminary reading of a rise of 1.3%. Notably, Japan’s capex increased at the fastest pace since the first quarter of 2015. This gave a major boost to Japan’s economic growth in the second quarter.

In August alone, the country’s GDP rose 0.8% supported by robust private-sector demand, which added 0.6 percentage points to the GDP. Further, housing investment and capital spending also added to the growth, rising 1.2% and 0.6%, respectively, in the month. Further, external demand, climbed 2% in the month, whereas imports gained 1%.

4 Best Choices

Japan witnessed the highest growth in household spending in the last three years. This was the result of a steady increase in monthly pays and summer bonuses. Historically, such events boost consumer spending and thus the GDP. Furthermore, the Japanese spent their bonuses in purchasing consumer electronics, cars and other luxury items.

In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony Corporation (SNE - Free Report) is the designer, developer and producer of electronic equipment, instruments and devices.

The company is based out of Tokyo and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 24.92%. The Zacks Consensus Estimate for the current year has improved 6.5% over the last 60 days.

Nikon Corporation (NINOY - Free Report) is a manufacturer and seller of optical instruments in Japan and worldwide.

The company is based out of Tokyo and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 65.19%. The Zacks Consensus Estimate for the current year has improved 10.1% over the last 60 days.

Kyocera Corporation (KYOCY - Free Report) is a producer and distributor of ceramic and electronic components as well as liquid crystal displays and telecommunications equipment.

The company is based out of Tokyo and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 87.06%. The Zacks Consensus Estimate for the current year has improved 21.7% 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.

The Zacks Rank #2 company is based out of Hamamatsu. The expected earnings growth rate for the current year is 10.7%. The Zacks Consensus Estimate for the current year has improved 1.2% over the last 90 days.

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