The land of the rising sun’s economic fortunes are turning around.

Prime Minister Shinzo Abe’s aggressive monetary policies, known as “Abenomics,” are starting to work their magic on the economy, creating an opportunity for forward-thinking stock investors.#-ad_banner-#

First-quarter results indicate Japan’s gross domestic product grew 3.5%, sparking hopes that a recovery is underway. Exports grew 3.8%, driven by strong auto sales and the weaker yen, which has fallen 20% against the U.S. dollar since November.

Abe’s policy of weakening the yen, major fiscal spending and generating 2% inflation by 2014 has sent the Japanese stock markets soaring higher. The Nikkei has jumped 46% since Abe took office.

Leading Japanese economists are projecting strong growth for the next three years thanks to Abe’s policies. I think these changes are strong signals for investors to look for opportunity within Japan. My eyes are on this pair of leading Japanese companies.

Canon (NYSE: CAJ)
Boasting a market cap of $41 billion, this company is a leader in the camera, copier and printer markets. Its price-to-earnings (P/E) ratio of under 15 is below the S&P 500’s P/E of nearly 18, but its shares have dropped 8% this year.

The company has a solid financial position, average debt levels and expanding profit margins. So what is creating the bearish wave in the shares?

My first thought was Canon’s products may be becoming obsolete. However, this isn’t the case.

The copier and printer business may be slowly sliding into obscurity as society moves away from paper and toward screen-based technology, but this isn’t going to happen overnight. These businesses will probably enjoy many more years of profitable operation.

Currency rates are the company’s top issue. Canon earns about 80% of its revenues from exporting, so volatility in the yen affects revenues and earnings regardless of the company’s actual performance. The latest currency decision from the Bank of Japan to leave its rate policy unchanged may be adding some stability to the stock price.

With a 4% dividend, Canon looks like a solid long-term buy. Technically, shares have shown tight range volatility this year. The price has spiked and fallen from more than $38 to a low in the $34 area. In fact, a quadruple bottom has formed in the $34 range, creating a support-buying opportunity on the chart. My 12-month target is $40.

Toyota (NYSE: TM)
This once-derided company has become a kingpin, currently ranking as the world’s top-selling automaker.

In fact, its latest quarterly profits were blowout positive, as fourth-quarter net profit doubled to more than $3 billion. Again, this is due primarily to Abenomics devaluing the yen. Strong sales of the Avalon sedan and Tacoma truck in the United States also helped boost profits.

The company’s forward P/E is about 13, and operating profits have been projected to increase 23% over the next two years. Technically, the stock price has retreated into my value buy zone, creating positive odds for an upward move. My 12-month target is $130, with stops presently at $110.

Risks to Consider: These are both solid companies, but they’re hugely affected by Japanese politics and the price of the yen. The primary risk for both companies is that Japanese monetary policy may change to adversely affect exchange rates, which would hurt profits. Be sure to always use stops and position size properly when investing.

Action to Take –> I like both Canon and Toyota as buys, thanks to their solid fundamental and technical outlooks.

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