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4 Japan Mutual Funds to Watch on Slow Growth in Q2 GDP

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The world’s third-largest economy expanded at a slower pace during the second quarter, indicating that aggressive stimulus measures did little to boost the economy. According to the official report, Japan witnessed an annualized GDP growth of only 0.2% compared with the first-quarter growth rate of 2%. The GDP figure also remained almost flat with the first-quarter level.

Sluggish expansion in the economy raised speculation that the country’s central bank and government headed by prime minister Shinzo Abe may come out with more stimulus measures in order to boost the economy. In this scenario, mutual funds having significant exposure to Japanese securities are poised to remain on investors’ radar in the coming days.

Japan’s Q2 GDP Sluggish

The consumer driven economy suffered as a result of lower spending during the second quarter, which emerged as the main reason for the slow growth in GDP. Consumer spending that represents more than half of the country’s GDP saw a sluggish 0.2% growth in the quarter, less than the 0.7% increase witnessed in the first quarter. Also, struggling business investments weighed on the economy. The quarter’s 0.4% fall in capital expenditure was preceded by the first-quarter decline of 0.7%.

Moreover, a strengthening yen and weak global demand had an adverse impact on the country’s export during the quarter. Due to a 5.9% annualized decline, net exports made a negative contribution of 0.3% to GDP growth.

Despite these concerns, residential investment witnessed strong growth during the quarter, reflecting the impact of aggressive economic stimulus measures. The GDP report showed that residential investment jumped 5% — the highest since 2011. A decline in mortgage rates following aggressive economic stimulus helped the sector to register healthy gains last quarter.

Hope for More Stimulus Measures

Abe has implemented several economic stimulus measures, popularly known as “Abenomics,” over the past few years to boost the Japanese economy. Recently, he announced a new stimulus package amounting to 13 trillion yen or $265 billion. This package includes a new spending of 7.5 trillion yen ($73 billion). The government also decided to pay 15,000 yen ($147) each to individuals from the country’s 22 million low-income population. Further, there are indications of increasing spending on infrastructure. This includes expanding the size of ports and expediting a high-speed train project.

In addition to these stimulus packages, the Bank of Japan (BoJ) raised the annual purchase limit of exchange-traded stock funds from 3.3 trillion yen to 6 trillion yen ($57 billion) and doubled its U.S. dollar lending scheme to $24 billion. BoJ expects these stimulus measures to help the economy in recovering over the coming years. Though the BOJ maintained its price outlook for fiscal 2017 and 2018, the bank revved up the real GDP growth outlook for fiscal 2017 to 1.3% from 0.1%.

4 Japan Mutual Funds in Focus

Given the rising hopes of more aggressive stimulus in addition to those that have already been implemented, mutual funds holding securities issued in Japan will remain on investors’ radar in the days ahead. Here we have highlighted four Japan ETFs that are expected to remain in focus.

T. Rowe Price Japan (PRJPX - Free Report) invests the bulk of its assets in the common stock of Japanese companies across a wide range of sectors. Annual expense ratio of 1.05% is lower than the category average of 1.42%. This Mutual Fund Rank #1 (Strong Buy) product has generated year-to-date and three-month returns of 13.8% and 8.5%, respectively.

Fidelity Japan Smaller Companies (FJSCX - Free Report) considers fundamental factors including financial strength and economic condition to invest mostly in securities of large-cap Japanese firms. The annual expense ratio of 1% is lower than the category average of 1.42%. This Mutual Fund Rank #1 product has year-to-date and three-month returns of 9% and 6%, respectively.

Commonwealth Japan (CNJFX - Free Report) invests the lion’s share of its assets in securities including depositary receipts and other derivatives that are issued in Japan. Though the annual expense ratio of 1.77% is higher than the category average of 1.42%, this Mutual Fund Rank #2 (Buy) product has returned 0.6% and 1.5% over the year-to-date and three-month, respectively.

Matthews Japan Investor (MJFOX - Free Report) invests a large portion of its assets in common and preferred stocks of companies located in Japan. Its annual expense ratio of 0.99% is lower than the category average of 1.42%. This Mutual Fund Rank #3 (Hold) product has generated year-to-date and three-month returns of 7% and 3.8%, respectively.

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