4 Stocks That Will Benefit From A Weaker Yen

Fears of the fallout from a surprise Brexit vote had sent investors scurrying toward a range of safe haven investment like gold, the dollar and the yen. However, the dollar surged to a two-week high on Tuesday as investors displayed a renewed propensity for risk taking.

This was primarily a result of the victory of Japan’s ruling coalition over the weekend. The win set off speculation that fresh stimulus measures would be initiated in order to boost the country’s economy.

Fresh Stimulus Expected

Early last month, prime minister Shinzo Abe had promised to take strong measures in order to stimulate economic growth. On June 1, he said that this would primarily come about in the form of a large fiscal stimulus package. Estimates about the size of the package vary from 10 to 20 trillion yen. Meanwhile, Abe announced that a proposed hike in sales tax rates would be deferred.

Earlier this week, Abe said that he would provide instructions to the Economy Minister so that he could begin work on the specifics of such a package. A meeting between Abe and former Fed chief Ben Bernanke heightened speculation about such stimulus measures.

One step which was widely expected to be taken was providing “helicopter money” or direct cash transfers to citizens. However, a senior cabinet official denied that such a measure was being considered, helping the yen curb its two day losses.

But expectations of further monetary easing continue to linger. The Bank of Japan has set negative interest rates earlier in the year while its asset purchase program continues. However, it is still far from achieving its inflation target and continues to battle a stronger yen.

Exporters to Gain from Weaker Yen

Despite the lack of clarity on the exact nature of the stimulus package, it is likely that steps will be taken to control the surging yen. For an export oriented economy, it is crucial that such steps are taken. According to estimates from Goldman Sachs (NYSE:GS) and JP Morgan (NYSE:JPM) , Japan’s auto companies are likely to experience a 17-18% reduction of their operating profit for the entire year due to the impact of the yen’s increase.

Technology exporters are among those companies which will also be hit. Many of them are already worried about the potential fallout of Brexit on Europe. The region does not represent significant opportunities for growth. However, as an important consumer of cutting edge technology, it remains a crucial revenue source for manufacturers of technological products. This is equally true for companies providing technological services.

4 Japanese Stocks Likely to Benefit

An increase in the yen’s value hurts exporters since it reduces the worth of earnings abroad. This in turn forces them to reduce cuts, which in turn stops wage increases. In such an event it would be difficult for the Japanese central bank to meet its inflation target.

On the other hand a fall in the value of the yen, as a result of stimulus measures will make these companies more profitable. This is because their products would become more competitive because prices would fall and profits repatriated would be higher.

Honda Motor Co., Ltd. (NYSE:HMC) is a major developer, manufacturer and distributor of automobiles, motorcycles and related products across the world. The stock is in the red year-to-date, but has gained 0.5% over the last one month.

Toyota Motor Corp. (NYSE:TM) is another Japanese automobile major. According to one estimate, a one yen increase against the dollar reduces the company’s profit by 40 billion yen. The stock has gained 2.2% and 4.8% over the last three months and one month, respectively.

Canon Inc. (NYSE:CAJ) produces, cameras, printers, copiers, multifunction devices and related equipment. According to its own estimates a one yen rise versus the dollar reduces annual operating profit by 3.9 billion yen. The stock has gained 1.9% over the last one month.

Olympus Corp. (OTC:OCPNY) manufactures and sells instruments and precision machinery on a global basis. The company has already fortified itself against forex risks via hedging, but is likely to gain from a weaker yen.