Japan ETFs In Focus As New Prime Minister Takes Office

by on August 30, 2011 | ETFs Mentioned:

The Japanese economy has endured two rough decades after a period of high growth made it seem as though they would quickly surpass the U.S. with ease. Lately, however, the economy has had trouble finding its footing, as the country has tried various techniques to try and jump-start its sputtering economy. Yet this has been easier said than done as a recent major natural disaster and the rising competition from nations such as Korea and China has made economic expansion extremely difficult for the country. This has put pressure on the political leadership of Japan to come up with a plan in order to make Japan Asia’s bright spot once again. Unfortunately, the country hasn’t exactly had a stable political picture and could continue to face more uncertainty thanks to recent political events in the nation [see also What Slowdown? Indonesia ETFs Hold Their Ground In Global Crisis].Today, the Japanese make yet another move to try and handle to economic crisis and Fukushima nuclear power plant emergency currently hanging over the nation. Prime Minister Minister Naoto Kan resigned on August 26th, making way for Yoshihiko Noda, the country’s newest leader. Noda defeated his fellow politicians by scrounging up 215 votes against the 177 brought in by his challenger, Banri Kaieda. Aside from the long-time economic woes of the country, “the new Prime Minister will also have the responsibility of overseeing the reconstruction of entire swathes of the east coast, damaged by the powerful earthquake of 11 March” writes Spero News.

This will mark the nation’s sixth prime minister in just five years, pointing to Japan’s dissatisfaction with how the country has been run as of late. While many felt that Kan had run the country into something of a dead-end, the hopes for Noda are not much higher. Noda will not only be inheriting long-time economic woes, but will also be rebuilding the country after a tsunami ravaged major portions of Japan, leaving over 20,000 missing or dead [see also Japan ETFs In Focus After Devastating Quake].

The 54-year-old Democrat ran his campaign in a rather unusual way. Noda called himself a man of mediocrity, stating that he was not the best looking or flashiest candidate to lead his country. Instead, the politician ran as a man of the people, claiming his views and policies to be both reasonable and realistic for the current economic outlook. Noda, though claiming to work hard for the people, will be facing a stalemate in parliament and a dismal approval rating of 9% according to early polls conducted before he took office.

Many have their opinions on how Noda will fare today’s environment, though a fair amount seem to be negative. Nevertheless, Noda will have a major impact on foreign investment in Japan and will likely have investors on their toes for the next few months. Below, we outline three ETFs to watch as Noda’s term plays out:

MSCI Japan Index Fund (EWJ)

EWJ is a grandfather as far as ETFs are concerned, as it has been trading since early 1996. The fund measure the performance of the Japanese equity market, and is focused on large cap firms like Toyota, Honda, and Canon. The ETF is also one of the most popular on the market, as it has a market cap of nearly $7 billion with an average daily volume of roughly 29 million shares. EWJ has a tilt towards the industrials and consumer cyclical sectors while skimming on energy, a rarity for a large cap product. The fund has lost over 12% in 2011.

CurrencyShares Japanese Yen Trust (FXY)

This ETF tracks the yen, a currency which has been in the limelight for some time as it has been appreciating significantly against the dollar as of late. Because Noda was the former Finance Minister for Japan, his policies on the yen will be especially under the microscope. While the now Prime Minister has attributed some of the yen’s appreciation to the lagging U.S. recovery, Noda has been commenting that the government will be detailing steps to combat the rising yen, as he recently warned (as Finance Minister) that he was ready to intervene on the yen. If Noda’s administration tries to curtail the yen, that could mean bad news for this ETF, at least in the short term [see also Why The Japanese Yen ETF Is Up].

DB Japanese Government Bond Futures ETN (JGBL)

This ETN tracks a benchmark which is intended to measure the performance of a long position in 10-year JGB Futures. The fund is relatively new, launching in March of this year, an inopportune time to say the least. JGBL charges expenses of 0.50% and has gained 1.4% since its inception. With all of the projects and rebuilding facing Noda, the amount of debt that Japan takes on, as well as how it is structured, will have a major impact on this ETN and its future returns.

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Disclosure: Photo courtesy of Markus Leupold-Löwenthal. No positions at time of writing.