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Will Japan ETFs Suffer as it Declares State of Emergency?

Sweta Jaiswal, FRM

The world’s third largest economy, with more than 4,200 confirmed coronavirus cases, has declared a state of emergency from Apr 7 that will last until May 6. Prime Minister of Japan, Shinzo Abe, announced the state of emergency in the capital Tokyo and six other prefectures — Chiba, Kanagawa and Saitama, the western hub of Osaka, and neighboring Hyogo, and the southwestern region of Fukuoka. Together, these all make about 44% of Japan's population and represent about half of the nation’s economy.

Abe also informed that Japan might see as many as 80,000 confirmed COVID-19 cases in a month if no appropriate initiative is taken as he declared a state of emergency. Moreover, if social-distancing measures are undertaken with a success rate of at least 70% or 80%, the increase in infections can peak-out in Japan in two weeks (according to experts’ calculations). With the emergency declaration, local officials will have the right to take initiatives like ordering the cancellation of events, limiting use of facilities, such as schools and movie theatres, and allowing land or buildings for usage as temporary medical facilities. 

Meanwhile, in order to combat the coronavirus pandemic, Japan has rolled out a massive stimulus package worth 108 trillion yen ($990bn) or equivalent to 20% of the nation’s economic output.

Impact of State of Emergency on Economy

The declaration of the state of emergency has raised concerns regarding the output that is expected to decline by as much as 20% in the current quarter. Consumer spending will likely be hit by roughly $23 billion, along with a 0.4% decline in Japan’s annual GDP due to the declaration of the state of emergency (per a recent report by an analyst at Nomura Research Institute). In addition, economists at Goldman Sachs expect that Japan’s economy during the emergency could shrink 25% this quarter.  Moreover, the analysts project a 60% decline in exports in the quarter.

ETFs in Focus

Against this backdrop, investors can keep a tab on Japan ETFs like iShares MSCI Japan ETF EWJ, JPMorgan BetaBuilders Japan ETF BBJP, Franklin FTSE Japan ETF FLJP, WisdomTree Japan SmallCap Dividend Fund DFJ and iShares MSCI Japan Small-Cap ETF SCJ.

EWJ 

This fund tracks the investment returns of the MSCI Japan Index. It comprises 323 holdings. The fund’s AUM is $8.82 billion and expense ratio, 0.49% (read: Is it the Right Time to Invest in Beaten-Down Japan ETFs?).

BBJP 

This fund tracks the investment returns of the Morningstar Japan Target Market Exposure Index. It comprises 375 holdings. The fund’s AUM is $2.41 billion, while its expense ratio stands at 0.19% (read: Japan ETFs to Shine as IMF Lifts Economic Outlook for 2020).

DFJ 

This fund tracks the investment returns of the WisdomTree Japan SmallCap Dividend Index. It consists of 780 holdings. The fund’s AUM is $224.2 million and the expense ratio, 0.58%.

FLJP 

The fund tracks the performance of the FTSE Japan Capped Index. It comprises 506 holdings. The fund’s AUM is $313.9 million and the expense ratio, 0.09%.

SCJ

The fund tracks the MSCI Japan Small Cap Index. It comprises 971 holdings. The fund’s AUM is $63.7 million and the expense ratio, 0.49%.

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iShares MSCI Japan ETF (EWJ): ETF Research Reports
 
WisdomTree Japan SmallCap Dividend ETF (DFJ): ETF Research Reports
 
iShares MSCI Japan Small-Cap ETF (SCJ): ETF Research Reports
 
Franklin FTSE Japan ETF (FLJP): ETF Research Reports
 
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
 
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