Will Taxes Slow Down Japan's Rally?

Will Taxes Slow Down Japan's Rally?

Japan's been as good an investor hot spot as any around the world in 2013, with the Nikkei racing to unparalleled gains on the year. The index has picked up more than 33% year to date, and the Nikkei strengthened its gains over the past week by picking up another 3.5%. Stimulus efforts have gone a long way to revitalizing a Japanese economy that's been stuck in neutral for years, but challenges loom ahead for the country's momentum. Will Japan remain a hotbed for investors?

The green light from the Bank of Japan
So far, the Bank of Japan has given its approval to the country's bounce. The central bank stated this week that Japan's economy has recovered "moderately" during 2013. The BoJ also voted to continue stimulus measures, so for cautious investors, there's no chance that will be ending any time soon. While Japan's markets may take a hit from any blowback when U.S. stimulus buying is tapered, it shouldn't affect your long-term outlook on Japan.

Much more concerning is the question of Japan's sales tax. Prime minister Shinzo Abe has mulled raising the country's tax in order to help ease its public debt, which has become one of the biggest burdens in the world. However, Abe has approached this move with caution: Japan's economy is expected to post strong second-quarter growth next week, and a blow from hiking the sales tax could affect both consumers and businesses. It's a short-term problem of slowing growth that will likely affect stocks and consumption vs. the long-term debacle of Japan's swelling debt.

However, economists polled by Bloomberg concluded that not raising the tax could affect Japanese markets in an even bigger way, by undermining any confidence about the country's bonds and debt being under control. Raising the sales tax might hamper investor gains in the short-term -- especially considering what the Nikkei's done in 2013 -- but it's a long-term aid to one massive challenge facing the country's future.

It's also, however, a blaring reminder that investors can't just invest in any old stock in surging Japan: The best companies are the ones worth your money, as faltering firms could feel an even bigger blow from a raised tax. Take Panasonic . Panasonic's had a rough time in 2013, but this stock doesn't show it, as shares have gained more than 46% year to date. Underneath that investor delight is a company that's struggled with billions of dollars in losses, and now is abandoning the consumer smartphone market. For Panasonic, any hit to the business climate domestically will exacerbate already giant hurdles in the company's way.

Japanese wireless leader NTT DoCoMo hasn't helped Panasonic's smartphone fortunes, especially after the company decided only to support Samsung's and Sony's offerings during the summer in the market. DoCoMo's expanding now, however, in a move that could be big for shareholders. The company's finally come to a deal with Apple to sell the iPhone in Japan after rivals have eaten away at DoCoMo's market share. That should help bolster DoCoMo's leadership in the tech-savvy country, but it's also a win for Apple, which commands a dominant position in Japan ahead of Samsung and other firms. Teaming up with DoCoMo now gives Apple the chance to reach out to the country's top wireless network and its tens of millions of subscribers.

DoCoMo's giving Apple a boost in Japan, but will it help the company reassert itself as the clear-cut leader in the global fight for tech dominance? The tech world has been thrown into chaos as the biggest titans invade one another's turf. At stake is the future of a trillion-dollar revolution: mobile. To find out which of these giants is set to dominate the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate, and we'll give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!

The article Will Taxes Slow Down Japan's Rally? originally appeared on Fool.com.

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