“We have upgraded Japanese equities to overweight, as we believe they should disproportionately benefit from global reflation,” BlackRock strategists said in a note.
The Bank of Japan’s loose monetary policies along with a wider rising rate differentials between the U.S. and Japan could support a depreciating Japanese yen currency over the short-term, which would bolster the export-heavy Japanese market.
The yen has been weakening against the greenback, with the U.S. dollar now trading at around ¥114.4, compared to ¥103 back in November, 2016.
Meanwhile, the depreciating JPY has allowed currency-hedged Japan ETFs to outperform their non-hedged peers. For instance, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) have been go-to options to access Japanese equities markets while hedging against foreign exchange risks. Over the past three months,DXJ rose 14.4%, HEWJ gained 11.6% and DBJP increased 11.6%, whereas the non-hedged iShares MSCI Japan ETF (NYSEArca: EWJ) was only 2.7% higher.