ETFs Caught in the Middle of Japan’s Economic Forecast Tug-of-War

It looks like there’s some disagreement about the future of Japan’s economy and the exchange traded funds (ETFs) that track it. Yesterday, we wrote a post saying that Japan’s economic council sees the economy ready to grow, but not everyone sees it that way.

The central bank’s chief says the economy is actually slowing because of housing investment weakness and cautious corporate sentiment, the Associated Press reports, and as a result, kept interest rates unchanged. That, coupled with the risk of an economic slowdown in the U.S., makes for a gloomy forecast. The government also revised its forecast for real gross domestic product growth for the year ending March 2008 down to 1.3% (it had been predicted at 2.1%), says the Financial Times.

Overall, the Bank of Japan downgraded its view of the state of their economy for the first time in three years. It had previously said that the economy was expanding moderately, without qualification. They’re now saying the economy is expanding moderately, but that the pace of growth is slowing overall.

Only time will tell who’s right. Depending on how you see it, there are ETFs for both sides of the argument:

• iShares S&P/TOPIX 150 Index (ITF), down 7.4% year to date
• WisdomTree Japan Total Dividend (DXJ), down 9.2% year to date
• SPDR Russell/Nomura Small Cap Japan (JSC), down 13.1% year to date
• UltraShort MSCI Japan ProShares (EWV), up 6.9% since its inception in November