Despite aggressive stimulus measures, the Japanese economy hardly grew in the second quarter due to weak exports and a decline in business expenditure. Official data showed that the world’s third largest economy registered an annualized GDP growth rate of only 0.2%, significantly lower than the first quarter’s growth rate of 2%. Moreover, the economy did not see any expansion from the first quarter.

What Slowed Down the Japanese GDP?

Slow growth in consumer spending played an important role in dragging the GDP down during second quarter. According to the GDP report, consumer expenditures, which represent nearly 60% of the country’s GDP, saw a growth of only 0.2%, less than the 0.7% increase witnessed in the first quarter. Moreover, decline in business investments had a negative impact on the economy. The quarter’s 0.4% fall in capital expenditure was preceded by the first-quarter decline of 0.7%.

Net exports suffered in the second quarter due to a stronger yen and a sluggish global economic environment. While exports witnessed an annualized decline of 5.9%, a drop in net exports made a negative contribution of 0.3% on GDP growth. However, a strong gain in residential investment emerged as one of the few bright spots. The GDP report showed that residential investment jumped 5% — the biggest rise since 2011. A decline in mortgage rates following aggressive economic stimulus had helped the segment to register healthy gains last quarter (read: Why Japan ETFs Are on an Incredible Run).

Will Fresh Stimulus Package Boost Economy?

Japan’s prime minister Shinzo Abe recently came up with a new stimulus package amounting to 13 trillion yen or $265 billion. This package includes a new spending of 7.5 trillion yen ($73 billion). The government also decided to pay 15,000 yen ($147) per person, who belongs to the country’s 22 million low-income population. Further, there are indications of widening spending on infrastructure. This includes increasing the size of ports and speeding up a high-speed train project (read: Can Japan ETFs Soar Without Helicopter Money?).

Moreover, the Bank of Japan (BoJ) raised the annual purchase limit of exchange-traded stock funds from 3.3 trillion yen to 6 trillion yen ($57 billion) and doubled its U.S. dollar lending scheme to $24 billion. However, it kept the buying limit of Japanese government bonds or key interest rates (negative 0.1%) intact.

Now the question is whether Abe’s aggressive economic stimulus program, which is popularly known as “Abenomics” will boost the economy in the days ahead. Though the BOJ maintained its price outlook for fiscal 2017 and 2018, the bank revved up the real GDP growth outlook for fiscal 2017 to 1.3% from 0.1%. However, the impact of these measures on the economy is still not clear (read: The Abenomics Guide: What is Abenomics?).

Japan ETFs in Focus

Meanwhile, the second-quarter’s slow growth rate raised hopes for additional stimulus measures in Japan. Hence, we have highlighted four ETFs that have significant exposure to Japanese equity securities and are poised to be on investors’ radar in coming days as they will closely watch the stimulus measures and their impact on the Japanese economy.

iShares MSCI Japan (EWJ Quick QuoteEWJ - Free Report)

This ETF is the most popular and liquid choice in its space with AUM of $14.2 billion and average daily volume of more than 38 million shares. This fund provides exposure to a basket of 317 Japanese stocks by tracking the MSCI Japan Index. The product charges 48 bps in fees per year from investors. From a sector perspective, consumer discretionary makes up for 20.8% share while industrials, financials and information technology round off the next three spots with a double-digit exposure each. This fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

WisdomTree Japan Hedged Equity ETF (DXJ Quick QuoteDXJ - Free Report)

This fund provides exposure to 350 firms by tracking the WisdomTree Japan Hedged Equity Index. The fund is also quite popular with AUM of more than $7.3 billion while it has an average daily volume of more than 6 million shares. The product has nearly 32.7% of its assets invested in its top 10 holdings. Sector-wise, consumer discretionary takes the top spot at 24.6% while industrials (22.6%) and information technology (13.5%) hold the next two positions. DXJ charges a fee of 48 bps annually and has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook (read: Did Pokemon Go Mania Boost Japan ETFs?).

Deutsche X-trackers MSCI Japan Hedged Equity (DBJP Quick QuoteDBJP - Free Report)

This product tracks the MSCI Japan US Dollar Hedged Index. In total, it holds 318 securities with almost 20.3% of its assets allocated to the top 10 holdings. DBJP has AUM of $1.4 million and solid average daily volume of around 960,000 shares. From a sector look, consumer discretionary takes the top spot at 20.8% while industrials, financials and information technology round off the top four. The ETF charges 45 bps in annual fees. It has a Zacks Rank #1 with a High risk outlook.

WisdomTree Japan SmallCap Dividend ETF (DFJ Quick QuoteDFJ - Free Report)

This fund provides exposure to 689 firms by tracking the WisdomTree Japan Hedged Equity Index. The fund has AUM of $451.3 billion while it has an impressive average daily volume of more than 63,000 shares. The product is well diversified with only 6.39% of its assets invested in its top 10 holdings. Sector wise, industrials takes the top spot at 25.5% while consumer discretionary (21.6%) and financials (15.4%) hold the next two positions. DFJ charges a fee of 58 bps annually and has a Zacks Rank #3 with a Medium risk outlook.

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