Japan is heading into an election on August 30. Polls show the Democratic Party of Japan stands a good chance of defeating Prime Minister Taro Aso’s Liberal Democratic Party in the Japanese parliament’s lower house.

To spur economic activity, the Democratic Party of Japan plans to push for more aggressive stimulus spending, such as allowances for families with children, free public high-school education and cuts to the gasoline tax.

Stimulus spending drives rebound

Government stimulus spending has already played a big role in the country’s recent turnaround. In the latest quarter, ended June 30, 2009, Japan’s economy posted an annualized growth rate of 3.7%. The turnaround comes after four quarters of steep contraction, and is one reason why investors are wondering if Japan is now a good place for offshore investing.

Under Prime Minister Aso, Japan’s government is spending 25 trillion yen ($284.6 billion Canadian) to help the economy grow. As in many other developed countries, this is taking the form of infrastructure spending, direct handouts to consumers and incentives for environmentally friendly products.

Japan is the world’s second-largest economy, so its health is vital to a long-term global economic recovery. Its size and level of development also make it an attractive place for those who take part in lower-risk offshore investing.

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For safer offshore investing, choose New York ADRs

Despite still-recovering domestic demand, Japan’s exports shot up 6.3% in the latest quarter — and exports to China and emerging countries were particularly strong.

The spike in exports will be good news for two companies we follow in our Wall Street Stock Forecaster newsletter. Both trade in the form of American depositary receipts (ADRs) on the New York exchange.

An ADR is an investment unit for foreign companies that trade on a U.S. stock market. These units can represent fractions of shares, whole shares, or multiple shares in the foreign company. They help investors simplify their offshore investing by letting them buy foreign shares on U.S. exchanges without the complications of foreign transactions.

Toyota Motor Company ADRs (symbol TM on New York) recently became the world’s largest automaker. It’s also a leader in new automotive technologies, including advanced hydrogen fuel-cell vehicles and gas/electric hybrid engines. The company sells its own hybrid cars, including its signature Prius model, in many countries. It also licenses the technology to other car companies. Toyota’s sales are down considerably from a year ago, but it could profit from an increase in Japanese exports, especially if U.S. demand picks up.

Sony Corp. ADRs (symbol SNE on New York) is a world leader in consumer electronics. These include the Sony Reader electronic-book device, whose sales have lagged behind online bookseller Amazon.com’s popular Kindle. The company is planning to launch two new versions of the Sony Reader this month. Sony Corp. could see higher sales and profits due to a rise in exports, particularly if demand for consumer goods rises.

We’ll continue to keep a close eye on both of these Japanese companies and update our buy/sell/hold advice as necessary in our Wall Street Stock Forecaster newsletter and our weekly email and telephone Hotlines. Click here to learn more about how you can subscribe for one full year with no risk and no commitment.