The Japanese markets and exchange traded funds (ETFs) have been the worst performing of the developed markets for the past two years.  So far this year, the Nikkei has lost about 3.5%.  Although the performance has not been so great, there are those who believe the country is on the cusp of turning around, reports Daniel Thomas of the Financial Times.

Japanese exporters are benefiting from proximity to growing emerging markets and corporations have posted six years of rising earnings.  In the midst of a global credit crisis, Japanese companies are well placed, as they tend to have low levels of debt and are conservatively run.  With the economy out of a depression, low unemployment and rising wages, consumers are apt to spend.

The fundamentals may be there, but there is still concern about the Japanese market.  Japan depends on the U.S. consumer and if a recession hits the U.S., then Japan will certainly feel the pain.  The market is also lacking a major catalyst and needs strong U.S. growth or a loosening monetary policy.

The ETFs remain below their long-term trend line, but if the Japanese market does turn around, we should see the ETFs moving upward.

  • iShares MSCI Japan Index (EWJ) down 0.7%
  • iShares S&P/Topix 150 Index (ITF) down 0.6%

Japanetfchart

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.