RJ Hamster
Japan Just Hit Record Highs. Here’s the Trade to…
Eric Fry
Editor, Smart Money
DAILY ISSUE
Japan Just Hit Record Highs. Here’s the Trade to Make.
Hello, Reader.
On Sunday night, the Seattle Seahawks defeated the New England Patriots 29-13 in Super Bowl LX. But the road to this win actually started several years ago.
In a blockbuster 2022 move, the Seahawks traded quarterback Russell Wilson for multiple, cornerstone picks – all of whom played major roles in the team’s win on Sunday.
The lesson here is simple: The road to victory can come from an advantageous “trade.”
Japan is seeing a similar story play out. The Japanese stock market is experiencing a record-breaking rally following Prime Minister Sanae Takaichi’s landslide election win, also on February 8.
With boosted confidence, investors are betting on…
- Strong government spending to boost the economy
- Potential tax cuts or financial relief
- Policies to support growth and corporate earnings
This is dubbed the “Takaichi trade.”
“Trade” here refers to a market bet, not companies exchanging goods… or, of course, NFL teams trading players.
But victory still blankets the Japanese markets like the custom-colored confetti littering the SoFi Stadium field after Seattle’s win. Connected to the Takaichi trade, the Nikkei 225, Japan’s benchmark index, hit all-time highs above 57,000 this week. It is up 15% so far this year.
The Tokyo Stock Price Index (TOPIX), which tracks domestic companies, also rose this week, as did Japanese ETFs. This reflects broader enthusiasm in Japanese equities.
But political optimism isn’t the only force powering the Japanese rally. So, in today’s Smart Money, let’s take a closer look at several other factors driving Japan’s market higher.
Then, I’ll share the best trade you can make now in order to capitalize on this overseas opportunity.
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1. Weakening Yen
Right after Takaichi’s landslide win, the yen sagged against the dollar, with the currency reaching its weakest point in two weeks. This propelled the Nikkei higher and caused Japanese stocks to surge.
When governments spend more and the central banks keep rates low, currencies tend to weaken. This would support exporters. A weaker yen helps Japan’s big exporters – like Toyota Motor Corp. (TM)and Sony Group Corp. (SONY) – because their overseas profits are worth more in yen.
The yen has since strengthened, after election noise eased and markets weighed policy details.
But most mainstream forecasts expect the yen to weaken further later in the year. This is because U.S. interest rates are much higher than Japan’s, and the Bank of Japan is expected to raise rates more slowly than the Federal Reserve.
2. The AI Tailwind
Corporate earnings – particularly from export-heavy and tech companies – are also supporting the rally. Stocks tied to AI and global tech trends have been notable contributors.
In fact, several Japanese companies are leading the charge to integrate AI into their operations.
These innovative companies are at the forefront of adopting and advancing AI technologies in Japan, contributing to innovation in their fields and positioning themselves as key players in the global AI race. Their investments and developments in AI continue to shape Japan’s technological landscape, driving productivity and creating new opportunities across various industries.
Let’s take a brief tour of a handful of these contributors…
Fujitsu Ltd. (FJTSY), one of Japan’s major IT companies, is applying AI to a variety of solutions, like business analytics, smart city processes, and enterprise IT systems. The company is also investing in AI-driven healthcare solutions and automation technologies.
Rakuten Group Inc. (RKUNY), often referred to as Japan’s Amazon, uses AI extensively in its e-commerce operations for personalized recommendations, customer service (AI-powered chatbots), and dynamic pricing strategies. Rakuten also leverages AI for logistics optimization and fraud detection in its fintech operations.
Panasonic Holdings Corp. (PCRHY)integrates AI across its product lines, especially in smart appliances and automotive technology. The company’s AI-driven “Smart Mobility” uses AI-enabled sensors and cameras to enhance vehicle safety and navigation. Panasonic is also developing market-leading AI technologies for the healthcare industry, including advanced imaging and robotics.
3. Global Sentiment
Additionally, gains across the broader Asia-Pacific region markets are feeding into Japan’s rally and reinforcing investor confidence. Many of East Asia’s strongest-performing sectors – particularly semiconductors, electronics, and AI-related supply chains – are tightly linked with Japanese manufacturers.
So, strength in those neighboring markets improves overall sentiment in the region… and benefits Japan’s export-driven economy.
Of course, volatility remains, and markets can shift quickly if policy conditions change.
But the bottom line is that Japanese stocks are strong right now, riding a wave of optimism around expected stimulus, favorable policies, and a weak yen.
To capitalize on the opportunity, I recommend using a “broadbrush” approach.
The Trade to Make Today
Specifically, I recommend a $12.9 billion ETF devoted to Japanese stocks, and one that has easily outpaced the S&P 500 by gaining more than 50% during the last 12 months.
This Japanese ETF is up 16% year-to-date and has set a new 52-week-high every day this week. Six of its top 10 holdings are major exporters and will benefit from a weaker yen.
Additionally, this trade offers a compelling way to diversify from U.S. stocks – a strategy, and challenge, I have been recommending for a while. Assuming the Japanese economy continues its current growth trajectory, this trade could produce solid double-digit gains for several years – even if the U.S. stock market falters somewhat.
You can learn how to access the name of my broadbrush Japanese recommendation by joining me at Fry’s Investment Report.
As a member, you will receive all of my latest research, alerts, and updates – including my continued outlook on Japanese stocks.
And you’ll be just in time to access my latest research in the February issue of Fry’s Investment Report, which I’m publishing on Friday.
Regards,
Eric Fry
Editor, Smart Money
