Japan stocks and related exchange traded funds are milling around as investors wait for the Bank of Japan’s decision on monetary policy set for May.
The WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) has declined 10.6% year-to-date while the iShares MSCI Japan ETF (NYSEArca: EWJ) dropped 9.6%.
An adviser to Prime Minister Abe stated that the central bank could implement additional stimulus measures to keep its 2% inflation target after a a sales-tax hike in April, Bloomberg reports. [WisdomTree: Progress on Abe’s Third Arrow Policies: From Savings to Investment]
“If the BOJ judges that the economy has fallen off its projected path, it will act appropriately and flexibly, and further easing is possible,” Etsuro Honda told Bloomberg at the Prime Minister’s Office. “I believe the BOJ will act if it sees changes in price expectations.”
The central bank is purchasing 50 trillion yen, or about $489 billion, in government bonds per year.
The BOJ has also been purchasing 1 trillion yen in ETFs per year as part of its ongoing asset-purchasing program. Honda believes there is “considerable” room for the central bank to up its purchases of ETFs if more stimulus is needed.
Japan-related stocks have been declining in anticipation to the sales-tax hike set for April as the government tries to cut down the world’s largest debt burden. The economy is projected to contract an annualized 3.5% in the second quarter as a sales tax increases to 8% from 5%.
Royal Bank of Scotland Group Plc economists led by Junko Nishioka say foreign investors are waiting on the timing and content of additional BOJ easing.
“Overseas investors strongly believe that the Japanese economy’s prospects fundamentally rely on whether the BOJ’s easing stance continues a commitment to raising stock prices, even beyond the important question of whether it reaches a 2 percent inflation price target,” Nishioka and Long Hanhua Wang said in a note. [Japan ETFs Still Popular With Investors]
Consumer prices, excluding fresh food, inched up 1.3% in January year-over-year, the quickest pace since 2008.
The iShares MSCI Japan ETF provides exposure Japanese equities and is subject to currency risks – so a depreciating yen currency can weigh on EWJ’s overall returns. However, the WisdomTree Japan Hedged Equity Fund hedges against a weak yen, allowing the fund to outperform a non-hedged Japan ETF if the yen depreciates against the dollar.
WisdomTree Japan Hedged Equity Fund
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