Why Japan ETF Needs a Reversal of Fortune

New numbers released this week are proving that Japan is in an economic slump that is dark, with little hope for a positive GDP that will help lead investments such as exchange traded funds (ETFs) out from below.As of May 20, there is new data showing that Japan’s economy has been through a 4% GDP contraction on a quarterly basis, with a 15.2% annualized slump, reports The Economist. This is a sign of Japan’s worst economic performance since the 1950s.

The collapse of exports has taken the economy down with it, as they fell 26% alone in the first quarter. It was the domestic repercussions of this that took the biggest toll on GDP in the first three months of the year. Companies halted any expansion, capital expenditures stopped, layoffs led to decreased consumer spending and household spending fell 1.1%.

The main glimmer of hope is the government’s fiscal-stimulus plan, estimated to amount to about 5% of GDP this year. Another hope is the depleted inventories need to eventually be restocked, so production will increase, even if there is no one to buy the goods. Exports to China, which is looking likely to see GDP grow by 8% this year, will provide further support.

Another part of the equation lies in a global rebound, because the world economy needs to buy the exports that Japan relied so heavily upon for GDP.

• iShares MSCI Japan Index (EWJ): down 4.9% year-to-date