Since the beginning of 2022, the Japanese Yen has dropped by almost -20 percent against the US dollar. That’s shrunk a 29.8 percent year-to-date local market gain in shares of dominant Japanese telecom Nippon Telegraph and Telephone (NTTYY) to a return of just 1.3 percent in US dollar terms, notes Roger Conrad, editor of Conrad's Utility Investor.

The last time the Yen was meaningfully cheaper was in the early 1980s. That’s when Federal Reserve Chairman Paul Volcker abruptly shifted course to avoid sending the world into a major depression, and set off a massive foreign currency rally.

It may be a bit early to call a currency market turn this time around. But a reversion closer to the mean JPY/USD exchange rate of the floating exchange rate era (1971) would produce a big gain for shares of this holding in our Aggressive portfolio.

The strong 2022 local currency return the continuing success of the communications franchise leveraging its best in class network, combining 5G wireless technology and ubiquitous fiber broadband. And like China’s Big 3 telecoms, NTT is now offering an expanding array of applications and capabilities to Japan’s industrial base.

That includes the world’s fastest zero bias operation of a graphene photodetector, promising a revolution in high speed sensors. The company has also developed a digital coherent signal processing circuit and optical device that’s 1.5 faster than any alternative. And it’s extending that technology lead with the launch of “innovation centers” in six locations, focusing on developing technology “with the potential to become mainstream within 5 to 10 years.”

NT&T will announce FYQ2 (end September 30) earnings and updated guidance on November 8. That’s likely to include a mid-single digit percentage dividend increase for calendar 2023. And we expect continuation of the solid business momentum of FYQ1, including increased benefits from recent restructuring moves with cost cutting, stock buybacks and expansion of the Japanese industrial and global solutions businesses.

Expected full FY2023 (end March 31) free cash flow of $8.5 billion plus after industry leading CAPEX would cover the current dividend by more than 2.3 times. Buy NT&T American Depositary Receipts up to $30 if you haven’t yet.

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