Japan's stock market rallied to its highest level in 4-1/2
years and the yen plunged after Japan's central bank unveiled a
massive economic stimulus plan in hopes of ending nearly two
decades of stagnation.
soared above all others as huge demand caused shares to trade at
a premium to their net asset value.
Investors joining the party Thursday could suffer a hangover
once the ETFs resume trading at the real value of all their
underlying stocks divided by the number of ETF shares
WisdomTree Japan Hedged Equity (
) flew 7.5% to 43.88 -- a nearly 6% premium over its NAV of
CurrencyShares Japanese Yen Trust (
), measuring the yen against the dollar, fell 3.43% to 101.80 --
almost 4% below its NAV of 105.51.
IShares MSCI Japan Index (
),WisdomTree Japan SmallCap Dividend (
) andSPDR Russell/Nomura Small Cap Japan (
) all rose about 4%, but traded at smaller premiums than DXJ.
ETFs trade at a discount or premium to their NAVs when there
are huge imbalances between supply and demand, such as when
issuers halt share creations. This usually doesn't last long
because authorized participants, who create and redeem ETF
shares, can engage in arbitrage trading, which keeps ETFs trading
close to their NAVs.
The yen had tumbled 17% from its mid-September peak while
Japan's stock market rallied 48% in expectation that Japan's new
government would take bold Federal Reserve-like actions to
devalue the yen and stimulate the economy.
Bank of Japan Governor Haruhiko Kuroda delivered Thursday,
announcing the BOJ would double the island nation's monetary base
over the next two years and buy riskier assets like exchange
traded funds and real estate trust funds.
"Japan's growth has been awful in the last few years and
everything it can do to get growth going is a good thing," said
Nariman Behravesh, chief economist at IHS Global Insight in
Lexington, Mass. "Japan has been late to the game in terms of
true quantitative easing, so it's playing catch up."
Japan's actions should be looked at in terms of a broader
context compared with central banks in Europe and the U.S., he
said. Over the past five years, Japan's central bank has
increased its balance sheet by 35%, while Europe's doubled, the
Federal Reserve's nearly tripled and England's grew 3.5
How much stimulus the market has already priced in is too
difficult to tell because it's been expecting it for awhile,
"The huge surge in equity markets spurred by the yen's plunge
has been a textbook devaluation scenario, in which stock markets
wager that the beggar-thy-neighbor approach to sparking growth on
revitalized export demand will work," Andrew Barber, CEO of
Waverly Advisors based in Corning, N.Y., said in an email. "It
Japan's ever-aging population will be impossible to support
with a conversely shrinking workforce. Pensioners pulling savings
and investments out of banks, will boost government lending
costs, Barber contends. A shrinking tax base will be unable to
pay off the national debt, which hovers above 200% of gross
Foreign lenders will demand higher interest rates, further
exacerbating the problem, he added.