Next Stop for Investors, The Land of the Rising Sun


For decades pundits have been claiming Japan’s “zombie” economy was here to stay; nothing could be done to revive it or the moribund stock market.

Fast forward to 2013. A new government installed in Tokyo and unprecedented central bank stimulus created a nice run-up in Japanese stocks. In fact, the G-20 group of major economies over the weekend praised Japan's monetary policies as supporting domestic demand (and not as a devaluing of the currency), giving the Nikkei another 2% boost on Monday.

Wall Street hasn’t ignored these developments. Goldman Sachs recently upped their 12-month target for the benchmark Nikkei 225 (^N225), seeing a 20% gain push the index to 16,000. As U.S. stocks seesaw a bit in the early spring, investors are betting Japan could be the place to find some gains.

With the money supply pumping, a weakened Yen (JPY=) has helped jumpstart Japanese stocks. The magical 100yen/USD “parity” mark is approaching fast, and Jonathan Krinsky, chief technical market analyst of Miller Tabak, sees it happening soon.

“I think [the yen] ultimately does get through [100 yen/dollar],” he says, “and when you look at a long term chart of the dollar/yen, it’s actually breaking a 25 to 30 year downtrend, so there are a lot reasons to think it could get much weaker versus the dollar.”

The sliding Yen has given way to the Nikkei's rebound, to the tune of 25% in the past 3 months. Krinsky sees this trend holding for some time.

“Sentiment has shifted pretty much to the bullish side, [but] you probably are going to see a bit of a shakeout at some point,” he says, but the charts don’t lie, and he sees a “massive long-term trend that appears to be in the early innings of shifting.”

But beware waiting for that pullback to jump in, Krinsky warns, because when “you see these initial secular shifts, everyone thinks they’re going to get that pullback, and you often don’t, so we could be in that scenario where it goes farther and faster.” And before you can sayonara, you’ve missed a nice run-up.

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