What’s Going On Here?Data out on Monday showed the Japanese economy shrank yet again last quarter, and its chip-hungry carmakers aren’t exactly helping the country go places. What Does This Mean?Japan’s economy was 0.8% smaller last quarter than it was the quarter before – a much steeper drop-off than the 0.2% economists were expecting (tweet this). There’s a couple of reasons for that: rising coronavirus cases discouraged shoppers from getting out and about, while supply chain constraints kept factories from firing on all cylinders.
But this isn’t a first – or even a second – for Japan, whose economy has now shrunk for five of the last eight quarters. Now, then, the pressure’s mounting on the country’s new prime minister to get things back on track. His idea: offer households and small businesses cash handouts, in hopes it’ll encourage them to spend more. Still, economists are skeptical: the issue isn’t that the Japanese don’t have money to spend, it’s that they don’t seem particularly fussed about spending it. Why Should I Care?The bigger picture: If you can’t buy chips, make chips.
Monday’s data also showed that Japanese factory production slowed down last quarter, as manufacturers like Toyota and Honda continue to wrestle – in a padded thong, presumably – with chip shortages. Good thing, then, that the Japanese government just unveiled plans to expand the country’s chipmaking industry, with the goal of tripling the sector’s revenue by 2030.
For you personally: How about a Japanese vacation?
A newly chip-boosted manufacturing industry could work wonders on Japan’s economic growth and, by extension, its stocks. That, at a time when they’re looking relatively cheap: their forward price-to-earnings ratio – that is, their current value relative to 2022's forecasted profits – is 30% lower than that of US stocks. That might be why Morgan Stanley thinks it’s time you head to the Land of the Rising Sun, recommending over the weekend that you swap your American stocks for Japanese ones. | 