Japan ETFs Will Continue Their Stellar Run In 2018

As international investing delighted all and sundry in 2017, the Japanese stock market was on a stellar ride leading equities back to heights last seen in 1991. Both the Topix and the Nikkei climbed more than 19% for the year with the former capping the best annual performance since 2013.

The rally was driven by a mix of Bank of Japan’s easy money policies and Prime Minister Shinzo Abe’s stimulus through “Abenomics” that are paying off, leading to strong growth and fat corporate profits. Japan is enjoying its longest stretch of economic growth since the 1990s, expanding for seven consecutive quarters. The robust growth is likely to continue in 2018 given strength in consumer spending, strong business confidence, and rise in exports. Notably, Japanese exports accelerated for a 12th straight month in November, pointing to growing momentum in the world’s third-largest economy.

The landslide victory of prime minister Shinzo Abe in a snap election has infused further optimism in the economy and the stock market. The success has bolstered his chances of winning another three-year term in September 2018 and suggests the continuation of “Abenomics” which hinges on three tactics, namely extreme monetary easing, flexible fiscal policy and structural reforms.

Additionally, a weaker yen is benefiting exporters and the manufacturing industry, leading to robust global demand for Japanese products. Notably, Japan is an export-oriented economy and a weaker currency makes its exports more competitive. This trend will prevail given tax cuts in the United States and the Fed’s policy tightening that would bolster dollar in the near term. On the other hand, oil prices are back to the two-and-a-half-year high on the back of tightening supply and reducing inventory. The dual tailwinds of rising oil prices and strengthening global economies will continue to raise the appeal for riskier assets, keeping yen subdued.

Moreover, Japan is the leader in the development and use of industrial robots touted as the fourth industrial revolution, which is creating new opportunities and fueling economic growth.