Japan's Factory Output Falls in November: ETFs in Focus

In November, Japan’s industrial output fell by 1.1% on a month-over-month basis majorly due to a pullback in output from the general purpose-machinery segment. The general and business-oriented machinery sector that rose sharply in October, declined by 11%, becoming the biggest drag on the production index, according to the recently released data. In November, the index of industrial shipments dropped by 1.4% but that of inventories increased by 0.2%.

The seasonally adjusted index of production at factories and mines stood at 104.7 against the 2015 base of 100, the Ministry of Economy, Trade and Industry (METI) said in the preliminary report. In October, the index rose at its fastest pace since January 2015, with 2.9% growth on a month-over-month basis.

On a yearly basis, industrial production advanced by 1.4% in November, much below the 4.2% rise witnessed in the month of October. Post release of the data, METI maintained its assessment of industrial production by saying the “industrial production is picking up slowly.”

Economists had forecast 1.9% decline for the month. Though the industrial numbers were better than expected, the outlook points toward a volatile ride for Japanese manufacturers in the months ahead. Manufacturers surveyed by METI, expect output to rise by 2.2% in December but fall 0.8% in January next year.

Japan was hit by a slew of natural disasters in the period ranging from July-September, affecting businesses and disrupting production. Also, the tourism industry got affected. However, economists expect the country to rebound in the last quarter of this year.

Per the Ministry, the trade frictions between Washington and Beijing didn’t affect the November data. However, the uncertainty surrounding the trade war is causing a lot of volatility in the global markets. This is a significant headwind for the export-reliant Japan economy.

Per, Toru Suehiro, senior market economist at Mizuho Securities Co, in the absence of strong exports, it’s difficult to predict robust growth in the country’s output when domestic demand is expected to be more or less flat.

Retail Sales

In addition to worries surrounding overseas demand, private consumption has shown no signs of strength either. Retail sales happen to be a gauge for the strength of private consumption, which accounts for about 60% of the Japanese economy. In November, retail sales increased by 1.4% on an annual basis, much below 2.2% increase expected by the economists. Retail sales growth slowed significantly in comparison to October, where sales grew at an annual rate of 3.6% (read: Should You Tap Japan ETFs on Strong Retail Sales in October?).

Job Market

Per a separate data, Japan’s jobless rate rose to 2.5% in November, from 2.4% in October. However, job availability is near a 44-year high. Country’s aging and shrinking population has led to a tight job market, resulting in labor shortages and spike in wages as companies are scrambling to attract workers.

ETFs in Focus

The slowdown in global economic growth and country specific factors could cause heightened volatility in the Japan ETFs going ahead. iShares MSCI Japan ETF EWJ, WisdomTree Japan Hedged Equity Fund DXJ, JPMorgan BetaBuilders Japan ETF BBJP, iShares Currency Hedged MSCI Japan ETF HEWJ, WisdomTree Japan SmallCap Dividend DFJ has lost 9.1%, 12.3%, 9.5%, 10.8% and 12.3%, respectively over the past four-weeks. Below we highlight them in detail (see: all the Asia-Pacific (Developed) ETFs here):

EWJ

The fund tracks the MSCI Japan Index and comprises 322 holdings. It has AUM of $14.7 billion and expense ratio of 0.49%. The fund carries a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

DXJ

The fund tracks the WisdomTree Japan Hedged Equity Index and comprises 259 holdings. It manages an asset base of $3.8 billion and has expense ratio of 0.48%. The fund carries a Zacks ETF Rank #2 with a Medium risk outlook (read: Japan Economy Shows Signs of Improvement: ETFs in Focus).

BBJP

The fund tracks the Morningstar Japan Target Market Exposure Index. It comprises 385 holdings. The fund’s AUM is $3.1 billion and expense ratio is 0.19%.

HEWJ

The fund tracks the MSCI Japan 100% Hedged to USD Index. It manages an asset base of AUM is $785.2 million and expense ratio is 0.49%. HEWJcarries a Zacks ETF Rank #2 with a Medium risk outlook.

DFJ

The fund tracks the WisdomTree Japan SmallCap Dividend Index and comprises 763 holdings. The fund’s AUM is $724.3 million and expense ratio is 0.58%. The fund carries a Zacks ETF Rank #2 with a Medium risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ISHA-CH MS JAP (HEWJ): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
WISDMTR-JP SC D (DFJ): ETF Research Reports
 
ISHARS-JAPAN (EWJ): ETF Research Reports
 
JPM-BBLD JAP (BBJP): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report