Japan – Remember Japan? – Punishing Germany

You have to think that Germany might have been a dissenting voice during the recent G7 meeting where finance officials decided to tacitly let Japan continue its yen-weakening easing. After all, exports constitute 40% of Germany's Gross Domestic Product. In the roughly six months since the Abe regime came back into power and has put a lead foot to the stimulus pedal, the euro has risen sharply against the Japanese yen, as seen in the Euro-to-Yen exchange rate.

Euro to Japanese Yen Exchange Rate data by YCharts

If you're Japanese-based Toyota (TM) the weaker yen suddenly makes your cars a bit more competitively priced. Indeed, Toyota recently announced first quarter profit doubled over a year ago, in large part due to the weakening yen. The move has put Toyota's PE ratio up to about 20, more than double the level of General Motors (GM) and Ford (F).

TM PE Ratio TTM data by YCharts

On the other side of the Yen-Euro trade are the likes of German-based auto manufacturers Volkswagen and Daimler. Not only are they coping with weak European demand given the EU's continuing economic weakness, but now they've got the reverse problem of a Toyota: a strengthening euro against the yen makes it less competitive in global markets. Volkswagen's first quarter net income fell 38% and Daimler's profits slumped 60%. Volkswagen shares are down 8% this year, compared to a 25% rise for Toyota. Daimler has managed a respectable 7% gain.

Year to date the $3 billion iShares MSCI Germany ETF (EWG), which tracks an index of 50 German based stocks including the big automakers, has only slightly trailed the broader iShares S&P Europe 350 ETF (EUFN).

IEV data by YCharts

But that's still a significant shift, as the German ETF's near 18% annualized gain for the three years leading up to the mid-December regime change in Japan was double the return of the Europe ETF.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.