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3 Funds to Buy as Japan's Economy Gathers Steam

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Per the latest report, Japan’s household spending surged to its highest level in three years. Despite being ravaged by typhoons, heat waves, higher-than-usual rainfall and an earthquake, Japanese households continued to spend more.

This can be attributed to heavy summer bonuses, which were handed out to Japanese workers. Under such circumstances, investing in mutual funds from Japan seems prudent.

Japan’s Household Spending Hits 3-Year High

Per the latest data, household spending in Japan increased 2.8% in August to its highest level since 2015. Japanese households spent the summer bonuses they received during this period on luxury items. Many Japanese firms hand out summer bonuses in June or July, which resulted in increased spending on cars, air-conditioners and fancy electronics items.

Moreover, labor cash earnings in August increased 0.9%, registering a 1.3% rise from the same period, last year. Also, base pay rose 1.4% year over year to its highest level since 1997. Per Hiroaki Muto, chief economist at Tokai Tokyo Research Center, a better-than-expected level of household spending despite rough weather points at a “virtuous cycle" in which wages witness a steady rise. Lastly, robust domestic demand overpowered trade war woes in Japan in August.

Japanese GDP at its Highest Level in 2 Years

Per Japan’s Cabinet Office, the country’s real GDP rose 3% in the second quarter of 2018. This follows a contraction witnessed by the Japanese economy in the first quarter.

Overall capital expenditure increased 3.1% in the second quarter of 2018, surpassing the preliminary reading of an increase of 1.3%. Notably, Japan’s capex increased at its fastest pace since the first quarter of 2015. This gave a major boost to Japan’s economic growth in the second quarter.

In August, the country’s GDP rose 0.8% driven by robust private-sector demand, which added 0.6 percentage points to the GDP. Further, housing investment and capital spending also added to the growth, rising 1.2% and 0.6%, respectively, in the month. Further, external demand increased 2% in the month, whereas imports gained 1%.

3 Best Fund Choices

We have thus selected three Japan mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

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 in the long run by investing 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 more than 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#1 and an annual expense ratio of 0.97%, which is below the category average of 1.27%. The fund has three and five-year returns of 19.7% and 11.2%, 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 more than 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 1.27%. The fund has three and five-year returns of 14% and 6.4%, respectively.

Hennessy Japan Investor (HJPNX - Free Report) seeks appreciation of capital in the long run. The fund invests 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 more than 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 20.7% and 14.4%, respectively.

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