Japanese yen lost ground but the Japanese stock market jumped 2% higher overnight. Why? Because the liberty party led by Abe won the election although widely expected. So why it is so special with his win? Because Abe’s plan is to double Japan's inflation goal from 1 to 2% and to provide unlimited easing in order to try and stimulate economic growth. In a plain word, he is going to print unlimited money to try to dig Japan out of the deflational hole, an economic nightmare for Japan for the past 20 years, so-call Japan’s lost 2 decades. So will money-printing really promote growth? Not a chance in the long run; otherwise every county can simply print money to prosperity. But this is usually a great opportunity for traders to expect high stock prices in the short run. After all, Japanese stocks have lost ground for 2 decades and valuation wise, they are very cheap now. Any stimulus will likely have a positive impact on stock prices for a while.
For aggressive traders,
EZJ, a leverage ETF, may be a way to play with this uptrend. However, I probably won’t jump into it right away. It has been in a range bound in $48-56 in the past half a year. If indeed the Japanese stocks are immediately going up with the prospect, EZJ should break upwards through $56. If that happens, there is much better chance that it will go up further with more momentum. Otherwise, it may first drop a bit towards its low boundary at $48, which should be a strong support. Buying at that price will give you a much better chance to be profitable.
For long-term players, a Japanese SmallCap dividend ETF,
DFJ, will be a much safer bet. It is cheap (P/E at 12), in an uptrend, and paying good dividends at 4.0%. I don’t think there is much risk for this one.
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