ETF Talk: Investing in Japan’s Interest Rate Policy

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

To follow up on last week’s ETF Talk about profiting from Japan’s “Abenomics,” this week we will explain how to profit directly from the Bank of Japan’s (BoJ) monetary policy. An ETF that hinges and swings on the results of the BoJ’s interest rate decision and the related performance of the Nikkei index is the MSCI Japan Index Fund (EWJ). This fund is specifically designed to measure the performance of the Japanese equity market and is home to more than $12 billion in total assets.

Moreover, this non-diversified fund seeks investment results that correspond to the price and yield performance of the MSCI Japan Index, which consists of stocks primarily traded on the Tokyo Stock Exchange. In addition, components of this fund include consumer discretionary, financial and industrials companies.

Investors keeping their eyes fixed on the Bank of Japan’s monetary policies during the past year have seen this fund soar to an almost 20% gain this year; in 2012, EWJ grew by a solid 6.5%. This ETF also has a dividend yield of 1.76% for investors interested in additional income. Due to increased industrial production and consumer spending, EWJ has profited from a market rally this year that subsided in May before gaining new life in recent weeks.


Because EWJ tracks the infrastructure of Japan’s economy, it invests in several sectors: industrials, 22.7%; consumer cyclical, 19.39%; financial services, 15.71%; technology, 9.66%; and healthcare, 6.9%, among others. And in terms of its individually held companies, 23.75% of this fund’s assets are invested in its top ten holdings.

Most of EWJ’s top ten holdings are exchanged on Asian markets rather than American ones. The top five companies with the most assets include Toyota Motor Corp., 5.81%; MITSUBISHI UFJ FINAN, 3.14%; Honda Motor Co Ltd., 2.55%; SUMITOMO MITSUI FINL, 2.22%; and Mizuho Financial Group Inc., 2.02%.

Although EWJ recently has stumbled with declines in June due to profit-taking pressures, EWJ has since made a strong rebound. And the future success of the fund is contingent on the Bank of Japan’s announcement of its interest rate policy, attracting even more attention to Japan’s economy. You can invest in this success from afar, too.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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