- Largest Japan-related ETF EWJ is off more than 7% year-to-date
- Japanese equities have struggled after the Bank of Japan unveiled negative interest rates in response to the volatile global markets
- Amid elevated global equity market volatility this year, the yen has been a safe-haven destination
The iShares MSCI Japan ETF (NYSEArca: EWJ), the largest Japan-related exchange traded fund, is off more than 7% year-to-date. Although EWJ is up 4.8% over the past month, concerns linger about the veracity of the recent rally in Japan ETFs.
Japanese equities have struggled after the Bank of Japan unveiled negative interest rates 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.
Amid elevated global equity market volatility this year, the yen has been a safe-haven destination, another factor weighing on Japanese stocks and the corresponding ETFs.
The negative yield on a bond essentially means people are paying for the privilege of lending to the Japanese government. With yields now down into the negative territory, it also suggests that there is continued demand for JGBs. Investors’ thirst for JGBs could keep a lid on equities, but obviously the options market sees things differently.
Moreover, the renewed selling pressure was seen as a buy opportunity from Japan’s Government Pension Investment Fund, the largest pool of retirement savings in the world, and domestic corporations in the last week of January.
The central bank previously stated it would target ETFs that track the JPX-Nikkei 400 Index. The JPX-Nikkei 400 Index was launched in January 2014 as a means of revitalizing the Japanese equity market. The JPX-Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit and market capitalization to select high-quality, capital-efficient Japanese companies.
“Taking a look at the Japan iShares ETF (EWJ), you can see that the bulls took control of the momentum in mid-February, and the price has been rising steadily toward the resistance of the 200-day moving average and descending trendline ever since. Active traders will watch for these resistance levels to prevent the price from heading higher like they did in the past and many bears will likely use these levels to set the placement of their short orders. From a risk management perspective, stop-loss orders will likely be placed directly above the 200-day moving average, which is trading at $12.07,” according to Investopedia.
iShares MSCI Japan ETF