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Kuroda Enters Second Term: Japan ETFs in Focus

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In its latest meeting, which was also the first of Governor Kuroda’s second term, the bank of Japan (BOJ) decided to cast aside the “fiscal 2019” target for attaining 2% inflation. This happened for the first time since the massive bond purchase started in 2013.

With this, the BoJ signals the acknowledgment of the fact that prices have become relatively less dependent on monetary policy. As expected, BOJ maintained short-term interest rates at minus 0.1% and the 10-year bond yield around 0% (as a part of its quantitative and qualitative monetary easing with yield curve control or QQEYCC).

The Japanese economy came out of a prolonged deflationary spiral after Abe took office in 2013. A monetary and fiscal firepower introduced by Shinzo Abe to lift the world’s third-largest economy from feeble growth and deflationary pressure – commonly known as Abenomics – made this possible.

However, the massive monetary easing for about five years was not enough to bring about robust growth in the economy and pump up inflation to the desired level.

What to Expect in Kuroda’s Second Term?

From fiscal 2019 through fiscal 2020, BoJ expects the economy to register an expanding trend thanks to external demand. However, the growth will likely slow down due to a cyclical slowdown in business fixed investment and the adverse effects of the planned consumption tax hike.

As of now, 85% of the economists surveyed do not expect Kuroda to meet the price target before the end of his second term in 2023, per Bloomberg. Economists also believe that the appointment of deputy governor Masazumi Wakatabe, whose views are dovish in nature, is one of the likely reasons for disregarding the time reference.

Should You Buy Japan ETFs Now?

Moderately positive economic data, prolonged easing efforts and decent corporate earnings may give equities a solid boost. However, the fund may gain ahead if the yen remain soft. This is truer given the ongoing Fed policy tightening and the likely ascent of the U.S. dollar. So, investors foreseeing a weaker yen and seeking a Japanese flavor in their portfolio may start investing in hedged equity ETFs like DXJ to protect against a falling currency.

Japan ETFs in Focus

Below we highlight a few Japan-based ETFs that have returned decently in the last one-week frame, per etfdb.com (read: What's in Store for Japan ETFs).

ProShares UltraShort Yen (YCS - Free Report)

ProShares UltraShort Yen measures the performance of twice (200%) the inverse (opposite) of the U.S. dollar price of the yen. The fund is up 2.7% in the past one week (as of Apr 27, 2018).

Franklin FTSE Japan Hedged ETF (FLJH - Free Report)

The underlying FTSE Japan RIC Capped Hedged Index is a market-capitalization weighted index representing the performance of Japanese large and mid-capitalization stocks. The fund has gained about 2.2% in the past one week (see all Asia-Pacific (Developed) ETFs here).

iShares Adaptive Currency Hedged MSCI Japan ETF

The underlying MSCI Japan Adaptive Hedge to USD Index is dynamically hedged against the U.S. dollar determined systematically by four currency risk indicators. The underlying index may include large-mid-or small-capitalization companies. The fund has gained about 1.6% in the past one week.

Deutsche X-trackers MSCI Japan Currency-Hedged Equity Fund (DBJP - Free Report)

The underlying MSCI Japan US Dollar Hedged Index provides exposure to Japanese equity markets, while at the same time mitigates exposure to fluctuations between the value of the U.S. dollar and Japanese yen. The fund has gained about 1.5% in the past one week (as of Apr 27, 2018).

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