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How to Trade the Japanese Election Result

Monday, 17 Dec 2012 | 4:48 AM ET
Luc Novovitch | Photographer's Choice | Getty Images

The Japanese people have handed Shinzo Abe's Liberal Democratic Party the chance to kick-start the country's moribund economy – but which companies could benefit from the LDP's plans?

Exporters working outside the traditional Japanese strengths of consumer electronics should benefit if the new government pursues its aim of lowering the valuation of the yen, Seijiro Takeshita, director at Mizuho International, told CNBC.

He argued that many in the market don't understand "the long-term true strength of the Japanese."

"Many people misunderstand that Japanese manufacturing is going downhill because they look at consumer electronics, but if you look at the real growth, social infrastructure, factory automation and automobiles,these areas are going to benefit from growth in both advanced and emerging nations," he said.

"There are core Japanese strengths where this mass capability of making good quality (products) at a reasonable price could be diversified into other areas – like medical implements in the case of Terumo. If they get a little bit more elbow room from the yen, then their competitiveness against countries like Korea and Germany is going to advance greatly."

Takeshita's top picks include Hitachi, Yaskawa Electric, Rakuten, Otsuka, Fujitsu,Kyowa Hakko Kirin, Terumo and Hoya. His company holds shares in Fujitsu, Yaskawa Electric and Terumo but he does not have personal holdings in any of these stocks.

The Nikkei, Japan's stock market,rose to an eight and a half month high on Monday, fueled by optimism about Japanese exporters benefiting from a weaker yen. Abe's government expected to weaken the currency by urging the central bank to be more aggressive in monetary policy.

(Read more: Japan's Deflation Battle – Why ThisTime Is Different)

"Japanese exports have been hindered because of the yen and because of rising energy costs, a downturn in inventories and adjustment in China, downturn in Europe and the U.S.,"Takeshita said.

"You had a quadruple witching hitting Japan – but the biggest drag is the yen. If they can have breathing room with the yen, you have a very big advantage against those people who have been benefiting, like the Korean and German competitors."

Traders hope that a weaker yen and more proactive measures by the government and central bank will result in increased capital expenditure by Japanese companies. However, there may be some short-term pain for the Japanese people as a result of the new policies.

"They have to go for more innovative, growth-seeking opportunities but that's very painful," Takeshita said. "This is what takes along time. But the Japanese people are seeing that we really need to go through some painful procedures to get long-term growth for the future."

What Stocks to Buy On Japan Election
Seijiro Takeshita, director at Mizuho International, tells CNBC what stocks to buy on the back of the Japanese election.

(Read more: Japan's Deflation Battle – Why ThisTime Is Different)

"Japanese exports have been hindered because of the yen and because of rising energy costs, a downturn in inventories and adjustment in China, downturn in Europe and the U.S.,"Takeshita said.

"You had a quadruple witching hitting Japan – but the biggest drag is the yen. If they can have breathing room with the yen, you have a very big advantage against those people who have been benefiting, like the Korean and German competitors."

Traders hope that a weaker yen and more proactive measures by the government and central bank will result in increased capital expenditure by Japanese companies. However, there may be some short-term pain for the Japanese people as a result of the new policies.

"They have to go for more innovative, growth-seeking opportunities but that's very painful," Takeshita said. "This is what takes along time. But the Japanese people are seeing that we really need to go through some painful procedures to get long-term growth for the future."

(Read More: What Abe Needs to Deliver)

This could include changes to plans to shut down the country's nuclear power stations, instituted following the Fukushima disaster in 2011.

"People are getting more realistic about nuclear because we are being hit by the rise in energy prices. Hitachi and even Toshiba are likely to benefit from this regression," Takeshita said.

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