Top 5 Best Japanese Stocks to Watch 2023
Have you taken interest in the financial climate in the land of the rising run? Yes, we are talking about Japan.
The country is very well-known for sushi, technology, anime, and much more. But, besides the sake and the sushi, Japan also has some interesting companies that do business all over the world and are very much integrated into much of the globe’s lifestyles.
Whether the interest lies in following the Nikkei or understanding the Japanese stock market, we will informatively cover these areas of interest.
Let’s review the above information, as well as the top 5 best Japanese stocks to watch in 2023.
Table of Contents
Best Japanese Stocks to Watch: Introduction
All the talk around economics as of late has been about inflation.
The stimulus measures taken during the pandemic, the rise in the price of oil subsequently, and geopolitical factors have all played a part in the high-interest rate regime that most of the world currently finds itself in.
In such an environment, Japan’s central bank was, perhaps, the only one sticking to its loose monetary policy stance. However, in late 2022, the central bank slightly tightened its monetary policy by expanding its yield curve control band.
High inflation and interest rates would limit the Japanese economy’s growth. However, a strong dollar (and a weak yen) have encouraged exports and margins of some of the largest Japanese corporations.
A global slowdown could lead to the strengthening of the yen and that would have a disinflationary effect. At the same time, persistently high inflation could put pressure on the central bank to change its monetary policy. So, overall, Japan finds itself in an interesting situation as does most of the Asian individual markets.
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What is the TSE?
TSE stands for the Tokyo Stock Exchange. It is the primary stock exchange of Japan and one of the largest stock exchanges in the world. The TSE is a key player in the global financial markets as the top Japanese multinationals are listed on the exchange.
The Nikkei or the Nikkei 225 is the most well-known stock index in Japan. It consists of the top 225 blue chip companies that are listed on the Tokyo Stock Exchange. Investors and traders gauging the Japanese market often look at the Nikkei.
Interestingly, the Nikkei is a price-weighted index. It operates in Japanese yen and is rebalanced once every year. Also interesting is the fact that the Nikkei 225 hit its all-time high in the year 1989. Yes, that was about 34 years ago! It hasn’t reached that level to date.
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Japanese Stock Themes to Watch 2023
Supply chain and defence appear to be two important themes in the Japanese economy.
Supply chain refers to the trends of China plus one or simply moving away from China due to a lack of transparency in the operating conditions in that country.
Defence is also important as Japan recently announced a significant spending plan on its defence in the wake of the geopolitical situation as China becomes more assertive in the region.
Additionally, the post-pandemic economic recovery has aided Japanese manufacturing.
While that recovery could now be at risk due to high inflation, countries like India, Nigeria, and Saudi Arabia continue to grow strongly. China is also expected to grow at a moderate pace.
Lastly, the semiconductor sector is an interesting one to track as there is plenty of activity happening there. Taiwan is looking to set up bases outside the country while the US is engaged in a semiconductor trade conflict with China.
Top 5 Best Japanese Stocks to Watch 2023
With the current economic situation in Japan laid out, it is now time to look at the best Japanese stocks to watch in 2023.
We will overview below both the advantages and disadvantages of each given Japanese stock.
Please be advised that the list of best Japanese stocks is subjective and may differ for each individual investor:
1. Tokyo Electron Ltd
Tokyo Electron is a semiconductor company based out of Tokyo. It has a market capitalization of 7.6 trillion yen.
The company supplies equipment and services to semiconductor companies around the world. Some key products of Tokyo Electron include cleaning systems, wafer processing systems, and coaters.
- The semiconductor industry is fast becoming a strategic one as a lot of devices and weapons use semiconductor materials. So, the demand for such products is expected to remain high and even grow.
- Tokyo Electron counts Samsung, TSMC, and Intel among its customers. It operates in Asia, Europe, and the Americas and has a global business.
- The semiconductor sector is affected by the geopolitical environment. US restrictions on exports to China have the potential to affect Tokyo Electron.
- Additionally, any recessions or slowdowns caused by tight monetary policies around the world could dampen the demand from semiconductor manufacturers in the near term.
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2. Nippon Suisan Kaisha Ltd
Nippon Suisan Kaisha is better known as Nissui Corporation, its old name. It has a market capitalization of 167 billion yen. It is a seafood product company and an important business in an era when food security is increasingly being given priority.
- Nippon Suisan Kaisha exports its products to over 70 countries. Being in the food business, Nippon Suisan Kaisha tends to see strong demand for its products. It is a relatively stable stock and is considered a defensive play by some investors.
- However, the seafood business can be risky as activists and environmentalists can oppose certain activities that are seen to be unsustainable. Commercial whaling, for example, was something Nippon Suisan Kaisha had to stop after facing strong opposition from activists.
- Additionally, marine life can be affected by outbreaks of diseases and illnesses. Weather patterns and natural disasters can also impact the operations of Nippon Suisan Kaisha. These are risks that cannot really be controlled.
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3. Fast Retailing Co Ltd
Fast Retailing Co is Japan’s largest apparel company and parent of the famous Uniqlo brand. Some other brands in its portfolio are J Brand, Princesse Tam Tam, and Theory.
- Fast Retailing operates over 4500 stores globally and is considered to be the third-largest apparel company in the world by sales. Fast Retailing has a market capitalization of 8.9 trillion yen.
- A strong brand like Uniqlo is a competitive moat for the company. Fast Retailing also invests in technology and emerging trends like AI and robotics to become more efficient and stay competitive.
- However, retail is one of the first businesses to get hit whenever there is a recession. The high-interest rates and inflation may lead to such a situation and could be a challenge to Fast Retailing.
- Secondly, the retail business is hyper-competitive and it is difficult to differentiate. Competitors offering similar or comparable products at lower prices could put pressure on Fast Retailing’s margins.
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4. Sony Corp
Sony Corporation is probably Japan’s best-known conglomerate. It does business in the consumer electronics, music, gaming, and image sensor sectors. The Japanese giant has a market capitalization of 14.6 trillion yen.
- The brand name Sony is a household name not just in Japan, but all over the world. It is a tremendous strength for the company.
- The size and scale of Sony give it financial strength and it is almost too big a company to fail.
- However, Sony still faces challenges in its business. For example, low-cost Chinese electronics tend to eat up Sony’s market share in price-conscious markets.
- Sony is also subject to the constant and rapid pace of change in prevailing technologies. So, it always has to try and stay in the game through constant innovation. It failed notably with Betamax and ended up ceding the home video market to VHS.
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5. Mitsubishi Corp
Mitsubishi is another giant of Japanese commerce. It is the largest Japanese trading company. Mitsubishi Corp is believed to employ some 80,000 people. It has a market capitalization of 6.7 trillion yen.
- Mitsubishi does business in the energy, banking, chemicals, machinery, and food sectors. It, therefore, enjoys the benefits of diversification in addition to its well-known brand name.
- Mitsubishi also has a vast network of subsidiaries and partners in multiple geographies which allows it to expand its business and access multiple markets.
- Mitsubishi faces tough competition in the energy and machinery sectors as competitors can offer comparable products at low prices. This may especially be true as countries like China industrialize and build their industrial bases.
- The ever-changing technological landscape can also be a challenge for Mitsubishi as it has to constantly adapt and stay relevant.
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Best Japanese Stocks to Watch: Conclusion
What is your take on the potential top 5 best Japanese stocks to watch?
You likely now have a basic idea of where the Japanese economy stands and what are the business models of the companies that we covered.
Before starting to trade or invest, it’s very important to first determine your risk appetite and risk strategy, in order to manage both potential losses and profits.
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