5 Stocks To Buy As Japan's Economic Outlook Brightens

In a clear signal that Japan’s economic situation is improving, the country’s central bank raised its growth outlook for the year in a report released on Thursday. Of course, skeptics continue to point toward the country’s inflation rate, which still remains well below the Bank of Japan’s (BoJ) stated target. But it has become increasingly apparent that the economy has turned the corner and is on the verge of expansion.

Given Thursday’s events, the BoJ is likely to maintain is monetary stimulus as long as it needs to in order to boost growth and inflation. The continuing success of its stimulus measures, as well as that of the Japanese government, makes it a good idea to invest in Japan stocks at this time.

Bank of Japan Upgrades View on Economy

In its Outlook for Economic Activity and Prices, the BoJ sounded the most optimistic about the economy in nine years. Raising its yearly assessment for the economy, the central bank increased its 2017-18 forecast for real GDP above the rate of 1.5% projected in January. At 1.6%, the new estimate for yearly growth is a definite improvement.

In its quarterly assessment of the economy, the BoJ also said that Japan’s economy was now steadily moving ahead on the path toward “moderate expansion.” This is at variance with the view that the central bank had expressed in March, when it stated that the economic situation had improved, and was continuing to do so, “moderately as a trend.”

Additionally, both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) have recently raised their real growth forecasts for Japan. According to the IMF, the country’s economy will expand by 1.2% in 2017, which represents a 0.4 point improvement from its January estimate of a growth rate of 0.8%.

Monetary Stimulus Maintained to Tackle Inflation

However, Japan’s central bank also reduced it forecast for growth in core CPI for the fiscal year from 1.5% to 1.4%. Last week, BoJ governor Haruhiko Kuroda stated that the monetary stimulus which is in place is likely to continue. Kuroda said that this had become necessary because inflation remained significantly “sluggish.”

Such a comment also illustrates the variance between the positions of Japan’s central bank, and its compatriots in the U.S. and Europe, on monetary stimulus. However, on Thursday, Kuroda said he was confident that an expanding economy will ultimately lead to an increase in wages and consequently inflation.

Kuroda’s confidence reflects the economy’s new found strength, which has been more than evident since the beginning of the year. In March, exports increased by its largest extent in more than two years. At the same time, the confidence of manufacturers touched its highest level since the Great Recession of 2008.

Our Choices

The fact that Japan’s central bank has raised its economic outlook for the year is reflective of its new found confidence in the world’s third largest economy. Other economic indicators released recently also bear out such a view. Additionally, key financial institutions have also revised their assessments of the country’s economy upward.

Adding Japan’s stocks to your portfolios looks like a prudent option at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Hitachi, Ltd. (OTC:HTHIY) is one of the world's leading global electronics companies.

Hitachi has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 20.2% for the current year. Its earnings estimate for the current year has improved by 5.3% over the last 30 days.

Advantest Corp. ATEYY is one of the world's leading automatic test equipment suppliers to the semiconductor industry, and is also a producer of electronic and optoelectronic instruments and systems.

Advantest has a VGM Score of B. The company has expected earnings growth of 38.6% for the current year. Its earnings estimate for the current year has improved by 9% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NTT DOCOMO, Inc. (NYSE:DCM) is a provider of mobile telecom services in Japan.

NTT DOCOMO has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 8.8% for the current year. Its earnings estimate for the current year has improved by 0.6% over the last 60 days.

Canon Inc. (NYSE:CAJ) is an industry leader in professional and consumer imaging equipment and information systems.

Canon has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 30.7% for the current year. Its earnings estimate for the current year has improved by 9.9% over the last 60 days.

Nomura Holdings, Inc. (NYSE:NMR) is a leading financial services group in Japan and has worldwide operations, providing a wide range of value-added financial services and competitive products.

Nomura Holdings has a Zacks Rank #2 and a VGM Score of B. Its earnings estimate for the current year has improved by 14.6% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 11.38, lower than the industry average of 16.56.

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