The best way to play the Bank of Japan's aggressive stimulus efforts is to buy Toyota stock.
The Bank of Japan is pumping trillions of yen (hundreds of billions of dollars) into the Japanese financial system to counter deflation. The efforts are sparking Japanese stock market euphoria. The Nikkei 225, a broad index of Japanese blue chips is up 11.1% this year.
But a recent pullback in the Nikkei showed that when the Japan QE game is up and markets get wind of the real troubles plaguing the Japanese economy, market optimism will subside.
Two weeks ago, on April 23, the Nikkei eclipsed the 20,000 mark for the first time in 15 years. It was up on the year as much as 15.3% at 20,116.19. But then reality set in for the roaring Japanese markets…
You see, for all these efforts to try and stave off deflation, Japan simply doesn't have enough domestic spending to grow the economy – stimulus or not. The most recent data from the Japanese Ministry of Internal Affairs and Communications shows that overall household spending has fallen every month since March 2014 when it jumped 7.2%.
But most, if not all, of that increase in household spending was buoyed by Japanese consumers buying as much as they could before an April sales tax went into effect. It declined 4.6% the month after and another 8% after that.
That's why the fundamentals don't support a rally in the Nikkei. Since topping out on April 23, the market index has fallen about 4%.
And while you're right to be wary of the Japanese stock market, the BOJ easy-money policy is providing a different kind of opportunity for Toyota Motor Corp. (NYSE: TM) stock.