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Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Japanese Investment Jumps

  • Summary: Government data shows that capital investment in the April-June period grew by an impressive 16.6% y-o-y, the fastest pace since July-Sept. 2002, which means GDP for the period could be upward revised to 1.5% from 0.8% (annualized) on Sept. 11th. The CAPEX growth rate was a surprise and was led by such sectors as: semiconductor equipment, automobiles, and wholesale and retail in the non-manufacturing sector. Although the government survey also showed that this was the 16th-consecutive quarter of expansion and the markets reacted by sending stocks, bond yields and the yen higher, it is still unlikely the Bank of Japan will raise raise rates again this year due to uncertainty over the U.S. economy. Some analysts are skeptical of the government data since the better than expected results can be attributed to a sampling bias, similar to other key indicators, in which the firms surveyed change year to year.
  • Comment on related stocks/ETFs: The BoJ is not seen raising rates at this week's rate decision meeting, especially with a change in leadership coming later this month as PM Koizumi finishes his second and last term. The yen has surged since Friday when it was trading close to Y117/US$1 and is now in the upper Y115/US$ range. This should result in an added pop for ADR, ETF, and other Japan fund investments. If the stronger yen persists however, it will eat into foreign exchange conversion profits but should not result in any negative surprises. Japan's Big-3 auto: Toyota (NYSE:TM), Nissan (OTCPK:NSANY) and Honda (NYSE:HMC) are plays on the auto sector. Advantest (NYSE:ATE) is a large-cap semiconductor equipment play.
Source: Japan's CAPEX Data Surprises to Upside, but BoJ Rate Hike Unlikely