While some areas of the world, such as the European Union (EU), are experiencing stagnant economic growth, other parts of the globe are experiencing stronger growth—but it’s coming at a cost.
One nation that has embarked on an aggressive policy to stimulate economic growth in relation to the global economy is Japan. The Prime Minister, Shinzo Abe, has made it clear that he wants to push a very aggressive monetary policy program to try and stimulate economic growth, which has led to a significant decline in the value of that nation’s currency, the yen.
Recent data show that to some extent economic growth is improving, as the value of shipments exported in May was 10% higher than those of the same period in 2012; that exceeded estimates from a Bloomberg survey of economists, which had earlier estimated a 6.4% increase. (Source: Coxon, M., “Japan exports surge both since 2010 in Boost for Abe: Economy,” Bloomberg, June 18, 2013.)
But while the export sector is seeing a rebound in economic growth, the weakness of the yen is resulting in a trade deficit, as the costs of imports rise. The domestic economy is also hampered by Japan’s decision to shut down its nuclear power plants.
As of right now, the balance is still positive, as the growth in Japan’s gross domestic product (GDP) for the first quarter was an annualized 4.1%, and most analysts estimate that in the second quarter, the nation will post a GDP economic growth rate of approximately three percent.
That could have a profound impact on the U.S. economy. The CEO of Ford Motor Company (NYSE/F), Alan Mulally, recently complained about Japan’s policies. According to Mulally, not only is the nation a currency manipulator, giving Japan’s companies an unfair advantage in the global economy, but Japan itself is closed to outside competitors. (Source: “Ford’s CEO Calls Japan Currency Manipulator Amid Weaker Yen,” Bloomberg, June 20, 2013.)
The economic growth in export-oriented companies in Japan will give them an advantage over non-Japanese export companies for some time. Because both the Bank of Japan and the Prime Minister are adamant in increasing exports, which they believe will generate domestic economic growth, investors will want to accumulate strong companies, such as Toyota Motor Corporation (NYSE/TM), on pullbacks makes sense.
Just take a look at the stock chart for Toyota featured below:
Chart courtesy of www.StockCharts.com
Considering the huge move up in price that Toyota had over the past year, I would certainly suggest waiting for a more attractive level to accumulate shares. While economic growth is stagnating in many parts of the global economy, the drop in the yen for companies such as Toyota could help tilt future revenues in their favor.
We will have to continue monitoring data on economic growth to determine if the global economy will accelerate or slow. If there are signs that the global economy is about to re-accelerate and the Japanese yen remains weak, this could be a very bullish scenario for companies such as Toyota.
This article New Global Economic Reality Will Help This Stock Rise was originally published at Investment Contrarians