Japan investing stood out among investing ideas last year. Despite some economic issues in Japan, its long-term case actually appeals. Japan ETFs did well last year with a “Japan trade” partially picking up as some investors abandon China’s economic struggles. Still, that momentum isn’t the only reason to eye Japan and a Japan ETF. The Bank of Japan looks like it could be set to end its “negative” interest rate regime for the first time in eight years.
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While raising rates would have negative impacts in the U.S., ending negative rates in Japan indicates a return to normalcy. The country has tried to stimulate anemic growth for many years with a very generous rate structure. Inflation’s return to Japan along with wage growth could potentially help the nation’s economy escape its low growth vortex. A positive cycle of rising wages and inflation could set the country on a more positive long-term path.
Such a transition would benefit all kinds of Japan investing ideas. Japan ETF DXJ, though, could present a potent route into investing in a healthier economy. DXJ, the WisdomTree Japan Hedged Equity Fund, tracks the WisdomTree Japan Hedged Equity UCITS Index. Its approach to broad Japanese equities has helped it return nearly 50% over the last year, outperforming both tis ETF Database Category and FactSet Segment averages.
Perhaps more than its performance, though, is how the Japan ETF’s approach sets it apart. Rather than just offering a straightforward equities exposure, the Japan ETF addresses the currency gap between the yen and other currencies. That pure play on Japanese equities, then could benefit from a more positive economic outlook. It has already returned 14.6% YTD, charging a 48 basis point (bps) fee for its approach, and could continue to do well this year.
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