Japanese Stocks Shoot Higher

By Ronald Delegge

May 04, 2015 at 08:00 PM

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Memo to investors in international markets: The Nikkei index crossed above 20,000 points for the first time in 15 years and Japanese stocks appear poised for further gains.

Aside from central bank monetary policies favorable to stocks, pension funds are plowing more money into equities.

In early April, Japan's Government Pension Investment Fund (GPIF) hired BlackRock Japan and Nomura Asset Management to help shift money away from bonds into stocks and foreign investments. The 137 billion yen GPIF is the world's largest pension fund.

The iShares MSCI Japan ETF (EWJ) has gained 20.38% over the past year. EWJ has $17.5 billion in assets and is the globe's biggest single country ETF. The fund's top three holdings are Toyota Motor, Mitsubishi UFJ Financial, and Softbank.

What's been good for Japanese stocks has been bad for the yen. The Japanese currency has slid 16% in value versus the U.S. dollar over the past year. As a result, ETFs with yen-hedged exposure to stocks have outperformed.

Over the past year, the dbX Japan MSCI Currency Hedged ETF (DBJP) has soared 40.77%, beating the unhedged EWJ. DBJP keeps exposure to Japanese stocks but hedges exposure to the yen.

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