Can the land of the rising sun rise?

Granted, Japan has struggled mightily for the last 20 years. Unfortunately, a hard working country like Japan has become the poster child of what not to do in an economic crisis. Japan is the world’s second largest economy on the planet but its stock market has been lame for the better part of 20 years. What has held Japan back? Many things have held Japan back. The citizens blame the government for economic policy missteps and the government has blamed the people for being tight fisted with their savings.

A New Day Rising

With the election of the DPJ (Japan’s Democratic Party) the country is now hoping for significant changes in economic policies. For decades economists in Japan have blamed the citizenry for locking away much of the nations money in low yielding bank deposits reports Mure Dickie of The Financial Times. He goes on to report that the same economist think that by locking up this money Japan has been forced to be an export dependent economy. Japan’s high personal savings rate has come about as a result of insecurity about the economy. This has resulted in large sums of money under the control of Japanese women. Women in Japan typically control the finances in the home. Believe it or not, the Japanese housewives have a significant impact on global finance. This is due to the fact that the Japanese housewives are all looking for the same thing high, safe yields and they share information.

Unlocking the safe

The DPJ wants to stimulate consumer spending to shift the balance in the economy from export dependence to domestic demand. In essence, they want people to spend their savings and slow down the rate of savings. The Japanese certainly have the money to spend. It is estimated that there is $15 trillion dollars in low yielding bank accounts. Even unleashing some of that money will do Japan some good.

ETF Play

Japan seemingly has two ways to go – up or continue sideways. Seeing that there has been a political power shift in Japan there is a good chance of the direction being up. After decades of single party rule it is likely we will see change. If the Japanese government can put a pry bar in the nations wallets who will benefit most? Small and medium size companies is the answer. Local companies benefit greatly when people start spending more discretionary income. As well, small mid cap stocks tend to out preform large company stocks in economic rebounds. The ETFs in Small Cap Japan are:

Wisdom Tree Japan Small Cap Dividend (ticker DFJ). DFJ is up 6.41% ytd and is above both its 50 and 200 day EMA.

iShares MSCI Japan Small Cap (ticker SCJ). EWJ is up 4.41% ytd and is above both its 50 and 200 day moving average.

Charts courtesy of StockCharts.com

Disclosure Statement: ETFGPS is a blog that Navigates The World of ETFs. Sustainable Investment Strategies LLC is a Registered Investment Adviser in the State of Maryland, and does hold positions in the DFJ ETF at the time of writing. Investors who are interested in money management services may visit the Sustainable Investment Strategies LLC web site.

Tagged as: dfj, japan, scj