An exchange traded fund that tracks Japanese equities has been languishing for the better part of the year after a large earthquake and tsunami crippled the country. Third quarter data, though, reveals that the economy is bouncing back.
The $6 billion iShares MSCI Japan (NYSEArca: EWJ) is down about 14% year to date.
The Japanese economy grew at a slightly higher-than-expected annualized 6% in the third quarter, the first time in four quarters, putting the economy back on track to where it was before the devastating earthquake in March, reports Andy Sharp for Bloomberg.
Japan’s economic growth was largely driven by manufacturers who are finally increasing output. The sustainability of the recovery will depend on how much the reconstruction efforts may counterbalance the global slowdown amidst the Eurozone crisis and the quickly appreciating Japanese yen as a safe-haven asset. [Japanese Yen ETF Falls 3% After Currency Intervention]
CurrencyShares Japanese Yen Trust (NYSEArca: FXY) was flat on Monday.
Japanese manufacturers are facing “very strong headwinds,” Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc., said in the Bloomberg report. “GDP will slow very sharply in the current quarter.”
“Market interest has already shifted to a slowing down in the fourth quarter, and the first quarter of next year,” Junko Nishioka, chief economist at RBS Securities, said.
Analysts project an average 2.1% economic expansion for the fourth quarter.
“Japan’s economic growth will remain elevated, mainly on domestic demand,” Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co., said. “Especially from the first quarter, we expect reconstruction work in the Tohoku region to support the economy.”
iShares MSCI Japan
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Read the disclaimer; Tom Lydon is a board member of the funds for Rydex|SGI.
Max Chen contributed to this article.