Even when the COVID-19 cases start to dwindle around the globe, the real effects of the virus will surface with regard to their economic impact. Can countries like Japan, the third largest economy in the world, be able to weather this economic storm?
“The economic challenge for Japan is massive. A recession is almost a given due to falling consumer demand, slowing trade, and persistent uncertainty over future business conditions,” Paul Nadeau wrote in a Tokyo Review article. “Finance Minister Aso Taro has already ruled out suspending the October 2019 consumption tax increase, but it’s no small irony that Japan faces the COVID-19 crisis after Abe said that only an economic shock at the level of the 2008 Lehman Brothers crisis – exactly what now confronts Japan – could delay the tax hike’s implementation.”
Japan was banking on a profitable 2020, especially being the host of this year’s Summer Olympics. The country has been mired in decades of stagnant growth ever since the 1990s and the coronavirus pandemic is not doing it any favors.
“The government can no longer rely on a jolt from the 2020 Summer Olympics until next year, while the usual tourism which makes up an increasingly important segment of the Japanese economy has all but stalled,” Nadeau wrote. “A return to the deflation and stagnant growth that saddled Japan after the economic bubble burst in the early 1990s is likely – and policy tools to reinvigorate the economy are almost exhausted, with monetary policy already running negative interest rates and Japan’s already-high government spending limiting the impact of fiscal stimulus.”
Active and Passive ETF Exposure to Japan
Investors looking for diversification via Japan equities should take a look at the Goldman Sachs ActiveBeta Japan Equity ETF (GSJY). GSJY seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Goldman Sachs ActiveBeta® Japan Equity Index (the “index”).
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index. The index is designed to deliver exposure to equity securities of Japanese issuers.
Investors looking for broad single-country exposure to Japan can look at the iShares MSCI Japan Value ETF (EWJV). EWJV seeks to track the investment results of the MSCI Japan Value Index (USD).
The index is a free-float weighted index consisting of large- and mid-capitalization Japanese securities exhibiting overall value style characteristics. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents.
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