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Should You Tap Japan ETFs on BoJ's Continued Easy Money Policy?
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In its final policy meeting of the year, the Bank of Japan (BOJ) decided to maintain its ultra-loose monetary policy due to the presence of "extremely high uncertainties" affecting the country's economy. This decision pushes any potential unwinding of the policy into the new year (read: 6 Country ETFs that Topped S&P 500 in 2023).
Interest Rates and Yield Curve Control Remain Unchanged
The BOJ unanimously voted to keep interest rates at -0.1% and continued to adhere to its yield curve control policy, which sets the upper limit for 10-year Japanese government bond yields at 1%.
In a policy statement, the BOJ expressed its commitment to continue with monetary easing while vigilantly responding to economic activity, price developments, and financial conditions. The bank emphasized the need for patience in light of the uncertain global economic and financial market conditions.
Market Reactions to BOJ Decision
Following the BOJ's decision, the Japanese yen weakened against the U.S. dollar. In contrast, the Nikkei 225 stock index gained somewhat. Yields on 10-year Japanese government bonds remained largely unchanged.
Expectations for Changes in Monetary Policy
Most economists anticipate that Governor Kazuo Ueda will consider changes to the ultra-loose monetary policy in the coming year. This is likely to occur once the annual spring wage negotiations confirm a trend of significant wage increases, which would support the economy, per a CNBC article.
Inflation Outlook and Policy Preferences
The BOJ anticipates that core inflation, excluding food prices, will remain above 2% through fiscal 2024. Despite this sustained inflation, the BOJ continues to maintain its accommodative monetary policy. The bank prefers inflation to be driven by domestic demand, as it believes wage increases would lead to more sustainable consumer spending (read: Capitalize on Japan's Bullish Outlook With These ETFs).
What Lies Ahead of Japan ETFs?
The Nikkei 225 Index lost 0.6% in the past six months while the index is off 0.6% past month. The announcement of the continuation of a dovish BoJ should favor the index in the near term. WisdomTree Japan SmallCap Dividend Fund (DFJ - Free Report) (up 4.8% past month), Matthews Japan Active ETF (JPAN - Free Report) (up 3.8% past month), iShares MSCI Japan Small Cap ETF (SCJ - Free Report) (up 3.7% past month), iShares MSCI Japan ETF (EWJ - Free Report) (up 2.5% past month), JPMorgan BetaBuilders Japan ETF (BBJP - Free Report) (2.4%) (as of Dec 18, 2023) can be tracked for gains.
Any Wall of Worry?
China is Japan's biggest trading partner. Hence, the recent slowdown in the Chinese economy should go in favor of the Japan investing. In an effort to bolster the struggling property sector and counter its adverse impact on the economy, China has introduced new measures to shore up the ailing sector. But not much improvement has been noticed yet.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Should You Tap Japan ETFs on BoJ's Continued Easy Money Policy?
In its final policy meeting of the year, the Bank of Japan (BOJ) decided to maintain its ultra-loose monetary policy due to the presence of "extremely high uncertainties" affecting the country's economy. This decision pushes any potential unwinding of the policy into the new year (read: 6 Country ETFs that Topped S&P 500 in 2023).
Interest Rates and Yield Curve Control Remain Unchanged
The BOJ unanimously voted to keep interest rates at -0.1% and continued to adhere to its yield curve control policy, which sets the upper limit for 10-year Japanese government bond yields at 1%.
In a policy statement, the BOJ expressed its commitment to continue with monetary easing while vigilantly responding to economic activity, price developments, and financial conditions. The bank emphasized the need for patience in light of the uncertain global economic and financial market conditions.
Market Reactions to BOJ Decision
Following the BOJ's decision, the Japanese yen weakened against the U.S. dollar. In contrast, the Nikkei 225 stock index gained somewhat. Yields on 10-year Japanese government bonds remained largely unchanged.
Expectations for Changes in Monetary Policy
Most economists anticipate that Governor Kazuo Ueda will consider changes to the ultra-loose monetary policy in the coming year. This is likely to occur once the annual spring wage negotiations confirm a trend of significant wage increases, which would support the economy, per a CNBC article.
Inflation Outlook and Policy Preferences
The BOJ anticipates that core inflation, excluding food prices, will remain above 2% through fiscal 2024. Despite this sustained inflation, the BOJ continues to maintain its accommodative monetary policy. The bank prefers inflation to be driven by domestic demand, as it believes wage increases would lead to more sustainable consumer spending (read: Capitalize on Japan's Bullish Outlook With These ETFs).
What Lies Ahead of Japan ETFs?
The Nikkei 225 Index lost 0.6% in the past six months while the index is off 0.6% past month. The announcement of the continuation of a dovish BoJ should favor the index in the near term. WisdomTree Japan SmallCap Dividend Fund (DFJ - Free Report) (up 4.8% past month), Matthews Japan Active ETF (JPAN - Free Report) (up 3.8% past month), iShares MSCI Japan Small Cap ETF (SCJ - Free Report) (up 3.7% past month), iShares MSCI Japan ETF (EWJ - Free Report) (up 2.5% past month), JPMorgan BetaBuilders Japan ETF (BBJP - Free Report) (2.4%) (as of Dec 18, 2023) can be tracked for gains.
Any Wall of Worry?
China is Japan's biggest trading partner. Hence, the recent slowdown in the Chinese economy should go in favor of the Japan investing. In an effort to bolster the struggling property sector and counter its adverse impact on the economy, China has introduced new measures to shore up the ailing sector. But not much improvement has been noticed yet.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)