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Japan ETF Falls Flat As Exporters Stumble


Putting a damper on Japan’s recovering economy, the electronics export industry is slowing. Japan exchange traded fund investors may want to consider small-cap options to better focus on the growing domestic market.

The iShares MSCI Japan ETF (EWJ) , which includes a 52.8% weight toward mega-caps and 39.0% toward large-caps, has declined 0.9% year-to-date. [Japan Small-Cap ETFs Shine as Large Exporters Face Stronger Yen]

In contrast, small-cap Japanese stocks have been outperforming as they benefit from an expanding local economy. Year-to-date, the WisdomTree Japan SmallCap Dividend Fund (DFJ) is up 5.7%, iShares MSCI Japan Small-Cap ETF (SCJ) rose 5.4% and SPDR Russell/Nomura Small Cap Japan ETF (JSC) increased 4.5%. Additionally, the WisdomTree Japan Hedged Small Cap Fund (DXJS) , which hedges against an appreciating yen currency, is 6.6% higher so far this year.

Electronics companies like JVC Kenwood Corp. have experienced declining export revenues, weighing on Japan’s electrical machinery business, which generated trade surpluses of 7 trillion yen, or $67 billion until 2007 and could fall to a deficit as soon as next year, Bloomberg reports.

“This is a critical problem for Japan because these companies have been a driving force in the economy,” Tomoko Takase, a research manager at the Japan Electronics & Information Technology Industries Association, said in the article. “The hollowing out of the industry has been in the news but the level of awareness doesn’t match the significance of the consequences.”

The association calculates that domestic output from electronics could fall to 11.8 trillion yen this year, or less than half its 1997 peak.

According to Jeita data, Japanese exports of audio and visual equipment, digital cameras and music players have plummeted over 60% to 649 billion yen since 2007, largely due to increased international competition from Apple (AAPL).

“Japan has lost in this transition from the flip-phone to smartphones,” Gerhard Fasol, president of consultancy Eurotechnology Japan, said in the article. “That’s an old issue, but the fallout is coming now.”

iShares MSCI Japan Small-Cap ETF


For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.