Japan is hot right now. Currency-hedged Japan ETFs saw significant engagement spikes across VettaFi’s ETF Database last month. With the U.S. market still beset by a bifurcated economic narrative, in which the Fed keeps trying to cool off an economy that won’t stop adding jobs, Japan seems well-positioned as an alternative to an American market in the shadow of a recession. So what’s adding to the East Asian nation’s investment appeal?
See more: “Japan ETFs Are Attractive International Ideas”
Japan has been a key player in the global economy for decades, a developed market diversified across advanced, information-age industries. The economy has stagnated, however, since the asset price bubble burst in the late 1980s, with inflation and bond yields collapsing. The lack of inflation as well as dropping wages and worker productivity contributed to an overall malaise for the Japanese economy as a destination for investment.
So what’s changed? As inflation hit the world, Japan hasn’t been exempted – and the government has responded, pushing companies to raise wages amid the Spring’s traditional “shunto” wage negotiation period. The Bank of Japan has a new governor in Kazuo Ueda, who has signaled recently that the BOJ may actually take the first steps towards ending its ultra-loose monetary policy designed to boost the economy.
The government’s efforts to stimulate the economy as well as the reopening of tourism have also boosted the case for currency-hedged Japan ETFs, but one other point to note is “Oracle of Omaha” Warren Buffet’s interest in Japan. Buffet’s Berkshire Hathaway has upped its investments in each of Japan’s five largest trading firms from 5% to 7.4%, including names like Sumitomo, Mitsubishi, and Itochu.
Drilling Into One Of The Oldest, Biggest Japan ETFs
Buffet takes a similar strategy to WisdomTree’s Japan Hedged Equity Index, tracked by the WisdomTree Japan Hedged Equity Fund (DXJ), which has seen a significant month-over-month increase in attention on VettaFi’s ETF Database.
By hedging out currency fluctuations between the U.S. dollar and the Japanese yen, the ETF aims to offer a “pure play” on Japanese stocks that could be ready to ride boosted consumer spending if wages do rise. What’s more, it’s hedging out of the yen helps reduce the impact of a weakening yen on the value of stocks like those mentioned above.
DXJ has returned 4.4% over the last three months according to Logicly, and charging 48 basis points, it sits at a solid $1.6 billion in AUM. For those investors looking for a solid ETF diversified away from the U.S. with liquidity to spare and a notable investment case, DXJ could be one to watch in the weeks and months ahead.
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