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Is It Time to Buy Japan ETFs as Nikkei at About 30-Year High?

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Japanese shares were hovering near a 30-year high on Dec 9 courtesy of global market optimism. The United Kingdom’s starting of Pfizer COVID-19 vaccination program and likely progress over a U.S. stimulus deal enhanced hopes of a faster global economic recovery. Japan’s upbeat domestic machinery data also boosted Japan’s stock exchange.

Japan’s new prime minister Suga has proven a right candidate for the markets as his election meant few major changes to the country’s previous economic policy (known as “Abenomics”). Not only this, Suga seems to be a proponent of further low rates, which means further stock rally.

To bolster market sentiment even more, Japan’s core machinery orders recoiled sharply in October from the previous month’s decline. The 17.1% uptick was the largest sequential rise since comparable data became available in 2005, and breezed past economists’ forecast of a 2.8% rise in a Reuters poll.

Since “core machinery orders are leading indicators for capital spending,” as indicated by Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co, as quoted on Reuters, machinery and material sectors have high chances of outperforming ahead.

Buffett's Bet on Japan

As another positive, Warren Buffett’s Berkshire Hathaway Inc. recently bought stakes worth $6 billion in five Japanese trading companies. These companies are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. (read: Buffett Announces Stakes in Japan Trading Firms: ETFs to Watch).

The Japanese trading companies which are also known as “sogo shosha” are conglomerates that import various stuffs ranging from energy and metals to food and textiles into Japan, and provide services to manufacturers, according to a CNBC article.

Berkshire says it seeks to hold investments for the long term, and that it may increase its holdings in any of the companies up to a maximum of 9.9%, depending on price, as noted in the CNBC article. Buffett’s bet means long-term outperformance for Japan investing.

Yen to be Under Control

With the risk-on sentiments taking control of global equities, the safe-haven currency yen should not gain much strength. This should be favorable for Japanese stock indexes, which are mostly export-centric.

Japanese Shares a Buy?

Against this backdrop, below we highlight a few Japan ETFs that could be snapped up ahead.

iShares MSCI Japan ETF (EWJ - Free Report) – Up 6% Past Month

iShares MSCI Japan Equal Weighted ETF (EWJE - Free Report) – Up 5.5% Past Month

Xtrackers Japan JPXNikkei 400 Equity ETF  – Up 6.2% Past Month

iShares JPX-Nikkei 400 ETF (JPXN - Free Report) – Up 6%Past Month

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