Few market stories have stood out this year as much as the Japan investing narrative has. For so long, Japanese firms filled out international and East Asian equities ETFs dutifully, but did not necessarily excite. The global pandemic’s economic impacts have nudged the Japanese economy in a different direction, however. Government action, wage changes, and currency activity together have boosted the case for Japan ETFs like DXJ, a Japan ETF that is rapidly approaching $3 billion in ETF AUM.
What’s the situation in Japan investing? Warren Buffett made the case earlier this year for investing in Japan. The Oracle of Omaha suggested investors could find bargains in the developed economy there, which could appeal to U.S. investors facing an expensive stock market. Since then, markets have watched as workers fought for better wages as COVID-19’s reverberations finally pushed some helpful inflation in the East Asian nation.
While news this week has seen slowing China and U.S. growth impact Japan, too, that shouldn’t turn U.S. investors away from a Japan ETF. Japan’s economy still grew an annualized 4.8% in April-June, a downward revision that’s still much larger than its 1.1% growth in 2022.. For U.S. investors, however, the key factor remains the opportunity to be found in currency hedging and the carry effect.
Japan ETF DXJ and Its Approach
That’s the focus of DXJ, the WisdomTree Japan Hedged Equity Fund. DXJ charges a 48 basis point fee to track the WisdomTree Japan Hedged Equity Index. The Japan ETF offers exposure to Japanese equities while hedging out currency impacts. It remains a solid choice for those investors who believe the yen will remain weak against the dollar for some time at least. Given that the Fed plans even more rate hikes, that looks possible.
DXJ has returned a robust 40.2% YTD and 25.6% over the last three years. It has still outperformed its ETF Database Category and Factset Segment averages over the last month, too. Rapidly approaching $3 billion in ETF AUM, DXJ may be one to watch in the weeks ahead.
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