The story of Japan's latest attempt at economic revival
commenced when the government under Prime Minister, Shinzo Abe,
took control. Shinzo Abe's goals clearly focused on monetary
policy easing, debt financing, considerable spending on
infrastructure and bringing back inflation in order to boost
Japan higher (
Play a Resurgent Japan with These Three ETFs
Shinzo Abe appears to be quite successful at least on one
count, namely in the depreciation of the yen. Earlier, the Bank
of Japan was unwilling to expand credit in the economy which had
resulted in the yen appreciating excessively. The restrictive
monetary policy and rising yen acted as a huge drag on the
industrial production of Japan.
Yet when Shinzo Abe came to power, he forced the Bank of Japan
to implement an unlimited monetary easing policy in order to
weaken and stabilize the currency. Abe has also set a target for
inflation at 2% in order to reverse decades of deflation or flat
The aggressive monetary policy and expectation of further
easing, have reduced the yen to lower levels. In fact, investors
now need about 96 yen to buy a single dollar, a figure that is up
24% in just the past six months (
Japanese Yen ETFs: Any Hope in 2013?
However, depreciation beyond 100 may make the situation
complex, as it will result in imports getting expensive. Japan
imports most of its oil and liquefied natural gas and a
depreciation of the yen above 100 will raise the cost of imports
for these vital goods.
With the continuous fall in the value of yen, Japanese
that are designed to provide hedge against any fall in the
currency continue to rally. Both currency-hedged ETFs -
WisdomTree Japan Hedged Equity Fund (DXJ) and db-X MSCI Japan
Currency-Hedged Equity Fund (DBJP) - have exhibited strong
performances after the cabinet attempted to revive the economy
through aggressive monetary easing.
Investors should note that both DXJ and DBJP have posted solid
gains of approximately 34.85% and 36.7%, respectively, over a
period of six months. We have briefly discussed both the ETFs
below for those expecting further yen depreciation and strong
Japanese stock prices:
WisdomTree Japan Hedged Equity Fund (
DXJ was one of the best performing ETFs in the Japanese ETF
space after the government attempted to revive the economy
through aggressive monetary easing policies. In fact, the fund is
one of the top developed market funds over the past half
This Japanese ETF has also been designed to provide a hedge
against currency exposure, precisely the reason why the ETF
experienced a huge amount of inflows in the past months (
Currency Hedged ETFs: Top International
In terms of holdings, the fund offers a broader play on
Japanese stocks providing exposure to 274 equities. Mitsubishi
UFJ Financial Group, Takeda Pharmaceutical Co and Canon Inc are
the top three choices of the fund.
For sectors, Industrials dominate the holding pattern while
Consumer Discretionary, Information Technology, Health Care and
Materials also get double-digit allocation in the fund. The fund
charges a fee of 48 basis points on an annual basis.
db-X MSCI Japan Currency-Hedged Equity Fund (
With the yen sliding, DBJP is also an interesting option to
pick with the Japanese economy set to revive after four years of
continuous recession and decades of deflation. DBJP tracks the
MSCI Japan US Dollar Hedged Index, which provides exposure to
Japanese equity markets and hedges the Japanese yen to the U.S.
dollar by selling Japanese yen forwards (
Is It Time To Buy The Hedged Currency ETFs?
However, DBJP does not appear to be as popular as DXJ. Since
its inception, the fund could manage to amass an asset base of
$5.6 million and trade at very low volume levels. In terms of
total portfolio, like DXJ, it also has its asset base spread
across a large basket of 269 securities.
Among sectors exposure, Industrials is the top priority
followed by Consumer Cyclical and Financial Services. This fund's
expense ratio is just 3 basis points higher than DXJ, charging a
fee of 51 basis points on an annual basis.
If the measures taken by the government to ease monetary
policy work and result in further depreciation of the yen, it
could favor an export oriented economy like Japan. Japan relies
more on exports for growth and both of the aforementioned ETFs
could be big beneficiaries as a result.
This is also important to remember for those out there who
have 'regular' Japanese ETFs like
, as these could be hurt by the weakened currency, even if in
nominal terms assets appreciate.
Thus, investors will have to weigh the pros and cons of
currency hedging, and especially in the case of Japan. Since it
appears to be the country's stated goal to weaken the currency
and boost inflation though, a look to these hedged products may
be the way to go for the time being in the Japanese ETF
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
DB-XT MS JAP HD (DBJP): ETF Research Reports
WISDMTR-J HEF (DXJ): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report