The Japanese economy has been a major point of contention over the last few decades. What once looked like a budding nation fell prey to a terrible recession that has lasted for the better part of three decades. As such, a number of investors have avoided Japan altogether, as there are a slew of ETFs that now focus their Asian strategies around nixing Japanese exposure as many feel it to be portfolio kryptonite. But if Japan wants to break out of its multi-year funk, it will have to start from the ground up by releasing strong data and guidance to go along with it [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
One of the biggest hindrances on the Japanese economy is the continuing recovery from last year’s devastating tsunamis. This weekend marked one full year since the Fukushima meltdown and subsequent tsunamis that were caused by a major earthquake, wreaking havoc on much of the Japanese shoreline. The cleanup efforts and rebuilding have cost the economy dearly, and derailed any hopes of getting back on track for at least the short term future. “According to the Japanese governement, the total number of fatal victims or who are still missing sums up to 19-thousand and the estimated damage reaches up to roughly 213 billion US dollars” writes Emily Wang.
Today will see a major economic indicator from the devastated nation, as the Japanese central bank will be releasing its interest rate decision. That result is expected to hold at its previous mark of 0.10%, but a surprise in either direction could be a big market mover. Japan has been dealing with a strong yen and high inflation over the past few months, which could prompt an unexpected jump in interest rates in an effort to curtail inflation. It is also important to note that while the result of the decision will be important, the guidance issued afterwards has the potential to be even more significant for trading [see also Ex-Japan ETFs In Focus].
In light of this major report, today’s ETF to watch will be the Japan SmallCap Fund (DFJ). This fund seeks to replicate a benchmark that measures the performance of dividend-paying small capitalization companies in Japan. As a small cap product, DFJ will be more susceptible to market movements, setting it up for a potentially very active trading session. If interest rates jump, or if negative guidance is issued, DFJ may sink, but a firm result of this interest rate decision along with optimistic commentary may give this fund some nice tailwinds for the day [see also First Ex-Japan Small Cap ETF Debuts].
Disclosure: No positions at time of writing.