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Japan ETFs Rally on BoJ's Hints of Easing in October

Sanghamitra Saha

After the ECB and the Fed, it could be the Bank of Japan (BOJ) which could come up with further policy easing. In its latest meeting, BOJ hinted at the possibility of more stimulus as early as its next policy meeting in October to keep economic growth risks at bay (read: ETF Winners Amid Half-Hearted Response to Fed's Rate Cut).

As expected, the BOJ maintained its short-term interest rate target at negative 0.1% and a pledge to guide 10-year government bond yields around zero percent under its yield curve control (YCC) policy.

Pressure on Economic Data May Lead to Policy Easing

Japan's economic growth was revised lower to 0.3% in the second quarter of 2019 from a preliminary estimate of 0.4% and compared to the previous period's 0.5% growth. Lower capital expenditure and trade tensions are hurting the economy. Net exports contributed negatively to the GDP, per tradingeconomics.

However, private consumption was a sweet spot. The segment makes up about 60% of GDP and increased 0.6%, which is the maximum in two years, after no growth in the first quarter. On an annualized basis, the economy grew 1.3% in the second quarter, weaker than the preliminary reading of 1.8% and a revised 2.2% expansion in the previous quarter.

Also, Japan’s core consumer inflation slowed to a new two-year low in August due to lower energy prices and sluggish economic growth. Such tepid inflation data may goad the BoJ to take a dovish stance in the Oct 30-31 meeting.

The Japanese economy is due for a sales tax hike in October. Analysts warn that the economy may see waning domestic demand if sales tax hike hurts consumer sentiment and weighs on household spending. Since domestic demand is counterbalancing some of the weakness in exports, some easing action from the BoJ could be seen in October to hold consumer sentiment steady amid tax hikes.

Japan has long been enjoying beneficial easy money policies for long, which have put the economy on a growth path. The growth momentum has cooled lately. If the global economy remains this slow and other central banks keep rolling out massive stimulus like what they did in recent months, the BoJ may loosen its already ultra-easy monetary policy next month. This would help keep the yen weaker and help drive Japan’s export sector.

Hopes of more cheap money inflows should bode well for the stock market and push Japan ETFs higher. The following ETFs already gained on Sep 19 (see all Japan ETFs here).

ETFs in Focus

iShares Japan Small-Cap MSCI ETF SCJ – Up 1.33% on Sep 19

Japan Small-Cap Dividend Wisdomtree DFJ – Up 1.22%         

First Trust Japan Alphadex Fund FJP – Up 1.17%

Xtrackers Japan JPX-Nikkei 400 Equity ETF JPN – Up 1.16%

iShares Japan Min Vol Edge MSCI ETF JPMV – Up 1.08%

Wisdomtree Japan Smallcap Equity Hedged Fund DXJS – Up 1.08%

iShares MSCI Japan Value ETF EWJV – Up 1.00%

iShares JPX-Nikkei 400 ETF JPXN – Up 0.9%

JPMorgan BetaBuilders Japan ETF BBJP – Up 0.7%

iShares MSCI Japan ETF EWJ – Up 0.7%

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iShares JPX-Nikkei 400 ETF (JPXN): ETF Research Reports
 
iShares MSCI Japan ETF (EWJ): ETF Research Reports
 
WisdomTree Japan SmallCap Dividend Fund (DFJ): ETF Research Reports
 
iShares Edge MSCI Min Vol Japan ETF (JPMV): ETF Research Reports
 
iShares MSCI Japan Small-Cap ETF (SCJ): ETF Research Reports
 
Xtrackers Japan JPX-Nikkei 400 Equity ETF (JPN): ETF Research Reports
 
First Trust Japan AlphaDEX Fund (FJP): ETF Research Reports
 
iShares MSCI Japan Value ETF (EWJV): ETF Research Reports
 
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
 
WisdomTree Japan Hedged SmallCap Equity Fund (DXJS): ETF Research Reports
 
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