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3 Funds to Gain From Strength in Japan's Wage Growth

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Japan’s labor ministry stated on Aug 6 that inflation-adjusted real wages in the country increased 2.8% to its highest level since January 1997. Such a rise can be attributed to steady increase in regular monthly pay as well as summer bonuses.

Historically, such events boost consumer spending and thus the GDP. Finally, expectations that Japan’s inflation would finally touch the elusive 2% target were high. Under such circumstances, investing mutual funds from Japan sun seems prudent.

Wage Growth Hits 21-Year High

Japan’s labor ministry also stated on Aug 6 that June’s real wages increased 1.3% from May. This was also the biggest increase since 6.2% growth that the metric achieved in January 1997. Moreover, the data comes right ahead of the release of Japan’s second-quarter GDP and might provide the required stimulus to the country’s inflation.

Analysts expect Japan’s second-quarter GDP to hit 1.4% growth. Finally, rising wages are also expected to fuel consumer spending as households in the country are likely to spend their summer bonuses in purchasing luxury items.

What Led to the Growth?

The biggest stimulus to a rise in real wages came from special one-off payments in the form of summer bonuses, which surged 7% on a year-over-year basis. Further, nominal cash earnings increased 3.6% year over year in June, surpassing its 2.1% rate of growth in May.

Another major factor supporting the growth in real wages was the country’s tightening labor market. Under tight labor market conditions, employers respond by increasing wages in order to restrict attrition levels. Notably, the number of job seekers in Japan increased in June to its highest level in the last 44 years. The country’s job-to-application ratio increased to 1.62 in June from 1.60 in May.

3 Best Funds to Buy Now

Given such circumstances, we have highlighted three Japan mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and one-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Japan (PRJPX - Free Report) seeks capital appreciation for the long run by investing the majority of its assets in securities of companies based in Japan. PRJPX invests in various Japanese companies and industries, irrespective of their size.

This Sector - Japan - Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRJPX has a Zacks Mutual Fund Rank#2 and an annual expense ratio of 0.97%, which is below the category average of 1.26%. The fund has three and five-year returns of 14.4% and 12%, respectively.

Fidelity Japan (FJPNX - Free Report) seeks long-term capital growth. The fund invests a large portion of its assets in securities of companies in Japan. FJPNX invests in common stocks of companies that are influenced by economic conditions of Japan.

This Sector - Japan – Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FJPNX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.82%, which is below the category average of 1.26%. The fund has three and five-year returns of 9% and 7.2%, respectively.

Hennessy Japan Investor (HJPNX - Free Report) seeks appreciation of capital in the long run. The fund invests the majority of its assets in securities of companies from Japan. HJPNX is a diversified fund and invests in a variety of assets.

This Sector - Pacific Rim-Equity product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

HJPNX has a Zacks Mutual Fund Rank #1 and three and five-year returns of 14% and 14.9%, respectively.

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