Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0794
    +0.0001 (+0.01%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2638
    +0.0016 (+0.12%)
     
  • USD/JPY

    151.2360
    -0.1360 (-0.09%)
     
  • Bitcoin USD

    69,875.27
    -1,382.73 (-1.94%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

BoJ Stirs Stimulus: Japan ETFs to Win & Lose

The global market literally held its breath to see what the Bank of Japan (BoJ) comes up with in its latest policy meeting amid slackening economic conditions in that country. Notably, consumer prices in Japan fell 0.4% year over year in July 2016, maintaining the same clip as it had in the prior two months. July represented the fifth consecutive month of decline.

The Japanese economy grew 0.2% sequentially in the June quarter of 2016 compared with an initial estimate of a stagnation. On an annualized basis, the economy grew 0.7% compared with the previous reading of a 0.2% expansion (read: Japan's Economy Slowed in Q2: ETFs in Focus).

In such a feeble scenario, markets hoped for more stimulus and to a large extent the central bank did not disappoint market participants. No, the bank did not push interest rates further into the negative territory thanks to its inadequate success. Rather it held the rate steady in the September 21 meeting. But as new initiatives, the bank launched a fresh set of changes to its ongoing policies. Let’s dig a little deeper.

Inside BoJ’s Latest Moves

First, the bank will now control the bond yield-curve. It will issue a zero interest-rate target for 10-year government bonds to counter deflationary threats and accordingly buy bonds. The implementation of a long-term target was never tried before by BoJ.

The BOJ also indicated that its goal for increasing the monetary base via asset buyback, set at 80 trillion yen annually, may now vary in the short term. The bank in fact intends to “expand the [monetary] base until growth in the consumer price index (CPI) excluding fresh food "overshoots" its 2 percent target.”

Markets now term Japanese measures as quantitative and qualitative monetary easing with yield curve control or QQEYCC.

Market Reaction

In short, the focus of the policy measures shifted to 10-year interest rates from the so-far asset purchase program. As per Wall Street Journal, market participants are divided in two sections. While one cohort sees this as a limitation to the BoJ’s ability to further boost its ultra-easy monetary policy, another section greeted the new approach (read: Why Japan ETFs Are on an Incredible Run).

There are analysts who believe that “this buys governor Kuroda some time and leaves the door open for more rate cuts/policy easing which has seen the Yen weaken to the benefit of Nikkei exporters and helped financials rally (read: Is Japan Financial ETF Under Pressure?).”

Investors’ glee was reflected in Nikkei’s gains of about 2% at the Japanese market close. Another Japanese index Topix advanced about 2.7%. The Japanese currency yen fell slightly against the U.S. dollar just after the BoJ decision. A weaker yen will likely send Japanese stocks higher in the coming days.

Likely ETF Winners & Losers

Bank stocks should benefit from this move. No more pushing of rates into the negative territory came as a welcome relief for bank stocks. WisdomTree Japan Hedged Financials Fund DXJF should be a beneficiary out of this move as bank stocks perform better with the steepening of the yield curve, which is going to be the case for the Japanese economy now.

Among other winners, Japan ETFs are likely to gain ahead. These are WisdomTree Japan Hedged Equity Fund DXJ, iShares JPX-Nikkei 400 ETF JPXN, MAXIS Nikkei 225 Index ETF NKY and iShares MSCI Japan Small-Cap ETF SCJ are to name a few (see all Asia-Pacific (Developed) ETFs).

Japan’s 10-year government bond yields entered the positive territory for the first time in six months after BoJ vowed to buy debt to keep yields near zero. With the rise in long-term yields, Japanese bonds are likely to take a dive ahead. This puts PowerShares DB Japanese Govt Bond Futures ETN JGBL in focus.

CurrencyShares Japanese Yen ETF FXY is also likely to retreat in the near term in the wake of a weakening yen. However, RBC Capital Markets noted that “the BOJ may have changed the interim target to the yield curve, but the instruments it is using to hit it are basically unchanged, barring minor tweaks.” So, it remains to be seen how long the Japanese market reacts to the changes in monetary policies.

Want more information on the world of ETFs? Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments:

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


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
 
CRYSHS-JAP YEN (FXY): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
WISDMTR-JP HFF (DXJF): ETF Research Reports
 
ISHARS-JP NK400 (JPXN): ETF Research Reports
 
ISHARS-MS JA SC (SCJ): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
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

Advertisement