Preliminary reports from Ministry of Economy, Trade and Industry (METI), stated that April retail sales in Japan rose sequentially as well as year over year. This is a welcome piece of news after the country’s GDP shrank by 0.2% in the first three months of 2018, due to a decline in capital investment and private consumption. Economists, however, were unmoved by grim first-quarter growth numbers and still are of the opinion that the contraction is temporary and a rebound is in the cards.
An increase in retail sales and exports, gradual wage growth and an upbeat job scenario will likely lift overall growth in this Asian country. Therefore it would be a good move to invest in stocks from this region.
Retail Sales Up
According to preliminary reports from METI, retail sales rose by 1.6% year over year in May 2018, surpassing the estimated increase of 1%. The growth rate is higher than 1% increase witnessed in the previous month, and marked the sixth consecutive monthly rise.
April retail sales were up 1.4% sequentially, faring much better than the economist’s expectation of 0.5% growth.
Higher-than-expected or rising retail sales are considered positive for and supportive to the Japanese economy and the yen.
Positive Read on Wages
According to the preliminary wage report for March 2018, regular wages in Japan rose by 1.2% year on year, accelerating from 0.6% in February and reaching the highest rate of increase since July 1997. A gradual increase in wages should stimulate consumer spending. Prime minister Shinzo Abe has been calling on companies to raise employees pay by 3% or more.
Wage growth picture seems promising as businesses lifted wages by an average of 2.41% this year, according to data collected by Nikkei as of April 3. Higher wages are being offered by non manufacturers, in contrast to manufacturers doing so historically.
Low Unemployment
The region’s employment conditions have been improving steadily. Data for the region’s unemployment rate released on May 28, disclosed that the number of unemployed persons in April 2018 was 1.80 million, down 8.6% from the previous year. The unemployment rate, seasonally adjusted, was 2.5%, and met economists’ forecast and remained unchanged sequentially.
Exports Rise
Japan’s exports increased 7.8% in annual terms in April. Though the same fell short of market expectations of an 8.7% increase, it came in better than 2.1% rise seen in March. Export growth in April was primarily led by stronger shipments of transport equipment, particularly motor vehicles and machinery. The upbeat data should contribute to the second-quarter GDP after a showdown in the first quarter.
Though May’s decline in PMI and the recent slowdown is a dampener, analysts and economists believe that overseas factors will hold the key to Japan’s economic growth. According to the International Monetary Fund (IMF), the global economy is expected to grow 3.9% in 2018 — its fastest pace since 2011.
Stocks to Pick
While adding Japan stocks to your portfolio looks like a smart option now, picking winning stocks may be difficult. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Advantest Corp. ATEYY is one of the world's leading automatic test equipment suppliers to the semiconductor industry, and a producer of electronic and optoelectronic instruments and systems.
The company has expected earnings growth of 23.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 60 days. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hoya Corp. HOCPY is a specialty manufacturer of optical glass. The company's business activities include information technology, eye care, medical and imaging systems.
Hoya Corp has a Zacks Rank #2 (Buy). The company has expected earnings growth of 20.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 60 days.
Sony Corporation SNE designs, manufactures and sells consumer and industrial electronic equipment.
Sony has a Zacks Rank #2 . The company has expected earnings growth of 28% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.1% over the last 30 days.
Nikon Corp. NINOY is a Japanese multinational corporation headquartered in Tokyo. It specializes in optics and imaging products.
Nikon Corp has a Zacks Rank #2. The expected earnings growth is 41.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 30 days.
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