The Bank of Japan unexpectedly implemented negative interest rates Friday in response to the volatile global markets that has added to its ongoing deflationary risks, bolstering Japan country-specific exchange traded funds and pulling the rug from under the yen currency.
The iShares MSCI Japan ETF (NYSEArca: EWJ), the largest Japan-related ETF, was 1.8% higher Friday.
However, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) plummeted 1.8% on the BOJ’s looser monetary policy. FXY plunged below both its 50-day and 200-day simple moving averages Friday.
Meanwhile, currency hedged ETFs, which diminished the negative effect of a weaker yen currency, outpaced non-hedged funds. For instance, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) rose 3.8%, iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) increased 3.9% and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) gained 4.1%.
The new low yield environment also pushed Japanese investors to areas of higher income generation. Consequently, the Japanese real estate sector also jumped Friday, with the Japan Hedged Real Estate Fund (NYSEArca: DXJR), which tracks a group of diversified real estate, real estate investment trusts and some construction companies, up 7%.
The BOJ stated it would charge for a portion of bank reserves parked in its coffers, mirroring the monetary policy strategy from the European Central Bank, reports Leika Kihara for Reuters.
“What’s important is to show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it,” BOJ Governor Haruhiko Kuroda told a news conference.
The BOJ’s aggressive policy was a response to the increasingly weak global economic outlook and falling oil prices, which have renewed deflationary risks.
“But there’s a risk recent further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people’s deflationary mindset,” Haruhiko added. “The BOJ decided to adopt negative interest rates … to forestall such risks from materializing.”
WisdomTree Japan Hedged Equity Fund
Max Chen contributed to this article.