Can Japan ETFs Overcome Hurdles in 2012?

January 5th at 7:43am by Tom Lydon

After losing about 15% in 2011, exchange traded funds that invest in Japan have started the new year strong on hopes the country can continue to rebound from last year’s devastating earthquake and tsunami.

Japanese stocks soared on Tuesday as the Topix Index posted its best rise in 10 weeks. [Can Japan ETF Rebound with Economy?]

“The U.S. has been surprising people with some pretty good numbers and that’s helped to lift the mood, which has gotten too pessimistic,” Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., said on Bloomberg BusinessWeek.

Yet investors are still keeping a wary eye on Europe’s debt problems, which pushed the euro and global stocks lower on Thursday. [ETF Espresso: Euro Falls After French Bond Auction]

“Problems sparked by the European debt crisis are reigniting and people in the market have reaffirmed that the situation has not changed,” Mitsushige Akino at Ichiyoshi Investment Management Co., said on Bloomberg. “That’s weakening the euro and hurting exporters with a heavy reliance on Europe.” [Japan ETF Down 18% This Year]

The fallout from last year’s earthquake, tsunami and nuclear disaster still resonate in Japan and the economy is grappling with the effects. Analysts warn that Japan must keep up with developments such as the latest free-trade pact with the United States, modeling South Korea. Membership in the Trans-Pacific Partnership will also help offset the damaging effects of the rising yen, reports John M. Glionna for The LA Times.

Japan’s economy will also have to deal with the rising threat to the agriculture sector of the country. In Japan, there are about 2.4 million farming households and the country’s agriculture sector has already lost $30 billion due to the effects of March’s tsunami. Farmers in Japan are dealing with a lagging economy and natural calamity which threaten a 2,500 year old way of life, explains Glionna.

Meanwhile, Exxon Mobile is looking at restructuring its $3 billion stake in a Japanese unit, TonenGeneral, Japan’s second-biggest refiner by capacity. While it is affirmed there is no intention to completely exit the Japanese market, restructuring is in the works. Reuters reported earlier that Exxon is looking to sell a majority of its stake in the refiner, and other assets in Japan, in a deal worth about $5 billion, reports WSJ.com.

The iShares MSCI Japan Index Fund (NYSEArca: EWJ) has about $5.3 billion in assets. The fund is down 14% over the past year. Rydex CurrencyShares Japanese Yen Trust ETF (NYSEArca: FXY) has about $731 million in assets under management. FXY is up 6.5% for the past year, due to the strength of the yen.

iShares MSCI Japan Index Fund


Read the disclaimer; Tom Lydon is a board member of the funds for Rydex|SGI.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.

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