Inflation has beguiled Americans this year, frustrating an overall story of economic growth. However, inflation isn’t always a bad thing. In Japan, after decades of stolid deflation, inflation has boosted the country’s outlook.
With the country’s inflation rate running at a scalding hot — for Japan — 3%, wages are growing. Together, that’s enough for economists to say the country may be on track to finally end its deflationary gloom. That’s a turnaround investors can play in an ETF like the WisdomTree Japan Hedged Equity Fund (DXJ).
What’s behind the inflation story for the country, and what kind of impact is it having on the ground? Japan has spent hundreds of billions in extra government spending following the arrival of COVID-19. Its government introduced direct cash payments to get the country through the lockdown and global post-COVID shocks as well as to induce savings-oriented consumers to spend.
See more: “Inflation, Weak Yen Lifting Japan Stocks, ETFs“
That’s changing the view of a whole generation of younger people. Even 40-year-olds are changing their views thanks to their first experience of inflation. Taken together, the situation looks increasingly positive for investing in Japan. It’s already helped DXJ see returns of 39% year to date.
The Japanese Inflation Story in DXJ
DXJ tracks the WisdomTree Japan Hedged Equity UCITS Index. In doing so, it hedges out currency fluctuations between the U.S. dollar and the yen, offering a “pure play” on Japanese stock performance. The fund’s top holding sectors include finance, consumer durables, and product manufacturing, holding big-name Japanese firms like Toyota (7203) and Japan Tobacco (2914).
Charging 48 basis points, DXJ hasn’t only done well YTD. The ETF has also more than doubled the returns of its ETF Database Category average and its FactSet Segment average over the last five years and three years as well. Continued, steady inflation in Japan could boost the case for an ETF like DXJ.
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