Japan’s economy is seeing better days, thanks to consumer spending levels that have helped mitigate a strong yen and weak exports, buoying its related exchange traded funds (ETFs).

Real gross domestic product expanded at an annualized rate of 3.9% over the the third quarter, according to the Associated Press. [Japan’s ETFs Weighted By Deflation’s Effects.]

Other points are still signaling the economy has a ways to climb to get out of the doldrums:

  • In its monthly report for November, the government said “the economy has recently entered a lull,” using the same language it did in October when it cut its assessment for the first time in more than a year and a half.
  • The pressure is on for Prime Minister Naoto Kan to do more to jump-start growth even as he seeks to cut the country’s massive debt. Andrew Monahan for The Wall Street Journal reports that the strong yet has left exports smarting, and deflation is choking off growth at home.

According to Dow Jones NewsWire on Nasdaq, the economy minister of Japan said Friday that the government must have prices rise by the end of the next fiscal year, which starts April 1, 2011. They are trying to bring prices in line with positive territory for the fiscal year. [Asia ETFs: Fast Growth May Have Consequences.]

Performance has improved in Japan’s ETFs in recent weeks and months, but the country still has some big hurdles to overcome that could keep growth tempered, at best. iShares MSCI Japan (NYSEArca: EWJ) can be watched for opportunities, while CurrencyShares Japanese Yen Trust (NYSEArca: FXY) can be used to capitalize on the strong yen.

Read the disclaimer; Tom Lydon is a board member of 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.