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ETF Specialist

Is It Time to Start Looking at Japan ETFs?

A new ruling party pledges to revive the domestic economy, but obstacles abound.

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In August 2009, the Democratic Party of Japan won a landslide victory over the Liberal Democratic Party, the incumbent party who had been in power for most of the last 54 years. While the LDP is credited for engineering a period of stellar economic growth from the 1960s to the 1980s, it is also faulted for failing to turn around Japan's stagnant economy over the last 20 years. In 2009, the DPJ easily defeated the LDP, with a platform pledging to improve the quality of life for the average Japanese person, shrink the bureaucracy, cut wasteful public spending, and strengthen Japan's economic ties with its Asian neighbors. However, since this decisive election, the performance of the Japanese markets has continued to remain lackluster, and over the last month, the Nikkei 225 Index has underperformed the S&P 500 and global developed market indexes. Does this present an attractive entry point for an investment in Japanese exchange-traded funds?

The DPJ plans to revive the domestic economy by providing a boost to the Japanese consumer through tax cuts and through more handouts to the elderly, parents, and the unemployed. The DPJ also seeks to better support small and medium-size business, a shift in focus from the LDP's big-business-friendly policies. Yukio Hatoyama, the newly elected prime minister, is also proposing greater economic and political integration with its Asian neighbors--stronger trade relations with China would certainly be a boon to Japanese companies.

Patricia Oey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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