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Japan Economy on the Mend? ETFs in Focus

Japan’s core inflation (excluding food) increased for the fifth straight month in May, 2017. It grew 0.4% in the month compared with 0.3% in April. This was the fastest rise in more than two years, but it still remains far from the Bank of Japan’s 2% target rate.


Japan’s GDP grew 0.3% sequentially in the first quarter of 2017, at the same rate as the previous quarter. Consumer confidence improved marginally to 43.6 in May compared with 43.2 in April, while the business confidence index increased to 12 in the first quarter of 2017 compared with 10 in the fourth quarter of 2016 (read: Japan's Exports Rise Fastest in 2 Years: ETFs in Focus).


Although the country’s unemployment rate increased to 3.1% in May compared with a 2.8% increase in April, the participation rate recorded a nine-year high, as it surged to 60.8% in May compared with 60.3% in April. Moreover, Japan’s job to applicant ratio touched a 43-year high, recording 1.49 in May compared with 1.48 in April.


However, the country’s industrial production declined 3.3% in May compared with the previous month. This clouds the country’s growth outlook. Moreover, the uncertain path of oil prices adds to the agony.


Moreover, Japan’s household spending declined 0.1% year over year in May, showing signs of subdued wage growth (read: Japan Hedged ETFs Downgraded to Hold on Strong Yen).


Let us now discuss a few ETFs focused on providing exposure to Japan (see all Asia-Pacific (Developed) ETFs here).


WisdomTree Japan Hedged Equity Fund DXJ


This fund is suitable for investors looking for a broad-based exposure to the Japanese economy. It seeks to invest in dividend-paying companies with an export tilt.


The fund has AUM of $8.30 billion and charges a fee of 48 basis points a year. From a sector look, Consumer Discretionary, Industrials and Information Technology are the top three allocations of the fund, with 23%, 20% and 14% exposure, respectively. Toyota Motor Corp, Mitsubishi UFJ Financial Group and Japan Tobacco Inc are the top three holdings of the fund, with 5.01%, 3.93% and 3.89% exposure, respectively (as of June 29, 2017). It has returned 5.6% year to date and 37.83% in the last one year (as of June 29, 2017). As such, DXJ currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


Deutsche X-trackers MSCI Japan Hedged Equity ETF DBJP


This fund seeks to provide exposure to Japanese equities with a large-cap focus, while hedging away the currency risk.


The fund has AUM of $1.79 billion and charges a fee of 45 basis points a year. From a sector look, Industrials, Consumer Cyclical and Information Technology are the top three allocations of the fund, with 20%, 18% and 15% exposure, respectively. Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of the fund, with 4.15%, 2.42% and 2.04% exposure, respectively (as of June 28, 2017). It has returned 6.24% year to date and 30.22% in the last one year (as of June 29, 2017). As such, DBJP currently has a Zacks ETF Rank #3 with a Medium risk outlook.


iShares Currency Hedged MSCI Japan ETF HEWJ


This fund is the currency hedged equivalent of EWJ. It seeks to provide exposure to Japanese equities with a large-cap focus, while hedging away the fluctuations between the USD and JPY.


The fund has AUM of $1.19 billion and charges a fee of 49 basis points a year. From a sector look, Industrials, Consumer Discretionary and Financials are the top three allocations of the fund, with 19.89%, 19.56% and 12.96% exposure, respectively (as of June 28, 2017). Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of EWJ, with 4.24%, 2.47% and 2.09% exposure, respectively (as of June 28, 2017). It has returned 6.37% year to date and 30.5% in the last one year (as of June 29, 2017). As such, HEWJ currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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WISDMTR-J HEF (DXJ): ETF Research Reports
 
ISHA-CH MS JAP (HEWJ): ETF Research Reports
 
DEUTS-XT MS JPN (DBJP): ETF Research Reports
 
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