Japanese stocks surged after the implementation of loose and stimulative policies through so-called Abenomics, but now, Japan’s markets and country-specific exchange traded funds have been stalling due to a consumer tax hike.
Year-to-date, the iShares MSCI Japan ETF (NYSEArca: EWJ) has declined 2.1%. Meanwhile, yen-hedged Japan ETFs, WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), fell 0.8% and d decreased 3.5%, respectively. [Japan ETF Falls Flat As Exporters Stumble]
The April consumption tax hike, along with potential further hikes ahead, and the poor economic data will continue to weigh on Japan for some time, CNBC reports.
“With the consumption tax, we’re not done with this… as the government is poised to take it from 8 to 10 percent next October,” Paul Sheard, chief global economist at Standard & Poor’s Ratings Services, said on CNBC. “So if they go ahead with that we’re still going to be – for the next year to year and a half – in this no man’s land of not knowing whether what [Bank of Japan Governor Haruhiko] Kuroda is doing is successful.”
The economy has been slowing down ever since the sales tax was raised to 8% from 5% in April.
On Friday, the Japanese government revealed that household spending decreased a worse-than-expected 5.9% in July year-over-year, compared to forecasts for a 3% drop. Meanwhile, industrial output also rose a lower-than-expected 0.2% on the month, compared to expectations for a 1.0% rise.
The second quarter growth data also showed that the economy contracted an annualized 6.8%, the largest decline since the first quarter of 2011 when the economy was rattled by the earthquake and tsunami.
Consequently, some believe the Bank of Japan has room for further stimulus, especially with core inflation at 1.3%, below the central bank’s 2.0% inflation target. The Bank of Japan is scheduled to make an announcement on Wednesday, September 3. Most observers, though, do not expect further monetary stimulus until October.
iShares MSCI Japan ETF
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Max Chen contributed to this article.