The country's efforts to drive the currency down continues to work, but there are other factors serving as a tailwind, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
A weaker yen continues to drive Japanese stocks higher.
Japan's Nikkei-225 closed above 15,000 yesterday, for the first time since December 28, 2007. The index is now up 77% from its November 2012 bottom.
Toyota Motor (TM) and Mitsubishi UFJ Financial Group (MTU), two members of my Jubak's Picks portfolio, were up 3.7% and 3.1% respectively in Tokyo trading.
The yen fell as low as 102.42 to the US dollar, the lowest level for the Japanese currency since October 2008, before closing at 102.24 in Tokyo. But the financial markets seem to be betting that the yen has a clear path down to 105 to the dollar.
Part of that is confidence that the Bank of Japan and the Abe government want to push the currency at least that low in their efforts to revive the Japanese economy and increase inflation. The recently concluded meeting of the G7 group of the world's largest economies gave Japan a green light on its efforts.
But part is the continued strength of the US dollar. The Dollar Index climbed as far as 84.09 today, its highest level since July 2012, before easing to 83.80. (The Dollar Index measures the US dollar against a basket of currencies that include the euro, the yen, the pound sterling, the Canadian dollar, the Swedish krona, and the Swiss franc.)
The strength in the dollar today is yet another reminder that to climb, the dollar doesn't have to be perfect, or even a good currency. It just has to be less bad than the alternatives, the yen and the euro.
US economic data released yesterday were generally weak on an absolute basis, but better than the news from the Eurozone:
- Industrial production in the United States declined 0.5% month over month—but that was pretty much what economists had been expecting.
- The Producer Price Index didn't show a hint of future inflation that might inhibit the Federal Reserve's $85 billion a month in debt purchases.
- The National Association of Home Builders index of strength in the housing market climbed to 44 in the month, from 41. That was exactly the consensus among economists surveyed by Briefing.com.
But compare that anemic US performance with the Eurozone GDP numbers. GDP across the Eurozone as a whole fell 0.2% in the first quarter. The French economy showed a second straight quarter of contraction with a 0.2% decline. Germany managed to scratch out a 0.1% gain, but that was less than economists surveyed by Bloomberg had expected.
For 2013, the European Commission is now projecting that Eurozone GDP will fall by 0.4%. That comes after a 0.6% drop in 2012.
By the way, Japan is scheduled to release GDP data too. [Editor's note: Japan's GDP report, which came out after Jim's press time, showed 3.5% annualized growth, which was better than expectations.]
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Mitsubishi UFJ Financial Group and Toyota Motor as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund's portfolio here.