iShares MSCI Japan ETF: Time to Act!

The largest Japan ETF is the iShares MSCI Japan ETF (EWJ) with $16.47 billion in assets. In the last trailing year, the best-performing Japan ETF was, however, DXJ at 54.12%, but this year EWJ is rapidly catching up and has a good chance to outperform.

After BoJ ventured for the first time in 21 years — to tentatively hike its main interest rate, it definitely became a game changer for all investors in Asian stocks and bonds. It’s not the most widely covered topic, but chronic deflation isn’t the best environment for the stock market — perhaps, even worse than prolonged inflation. So now, investors should seriously consider increasing their exposure to one of the three key world economies.

In terms of macro, Japan's trade deficit decreased sharply to JPY 379,358 billion in February 2024 from JPY 928.908 billion in the same period of the prior year, compared with market estimates of a gap of JPY 810.2 billion.

Exports from Japan rose by 7.8% YoY to JPY 8,249.21 billion in February 2024, beating market forecasts of 5.3% and coming after an 11.9% surge in January, marking the 3rd straight month of its shipments increase (very impactful!) amid robust demand from the U.S. and China. Imports to Japan grew by 0.5% YoY to JPY 8,628.57 billion in February 2024, compared with a market consensus of 2.2% after a 9.8% fall in January. It was the first rise in imports since March 2023, amid signs of a recovery in domestic demand.

Meanwhile, Nikkei 225 jumped 2.5% to almost 41,000, reaching new record levels as the U.S. Federal Reserve reiterated expectations for three interest rate cuts this year. Japan has long been known for its large cross-shareholdings among major companies, called keiritsu conglomerates. This has led to significant illiquidity in the stock, impacting the ability of foreign or private investors to truly participate. This was a good policy to maintain control of Japanese operations, but resulted in large discounts to the stocks of Japanese companies.

In late 2022, the Tokyo Stock Exchange told Japanese companies that they must start providing better value to shareholders that reflects the company's underlying performance and assets. The Tokyo Stock Exchange, in consultation with the government, has promoted reductions in cross-shareholdings, share buybacks and generally enhanced “wealth effects” of rising stock prices.