The outlook for the Japanese economy might be “better than the market expectation” over the next few years. Despite the weak economic indicators globally, we believe Japan has more growth potential.
The key catalyst for the stock market should be a wrapup of a trade agreement with the US, expected in the months ahead. A US-Japan trade agreement will remove uncertainty among Japanese business operators, allowing them to lay out plans for the future effectively. The US is under pressure to reach a trade deal with Japan as the country is losing its share in the food and agricultural products markets in Japan to other countries such as EU, Australia, New Zealand, and Canada.
Japan has entered into trade agreements with many countries during the last several months, including the EU-Japan Economic Partnership Agreement (effective since February 2019) and the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), which was signed by 11 countries in December 2018.
One of the key beneficiaries of a USJapan trade agreement will be Japanese automakers. We recommend “iShares Core TOPIX ETF” as a choice for Japanese equity exposure. ETF is listed in the Japan stock exchange with the ticker “1475”. The management fee is only 0.06 per cent (including tax, 0.0648 per cent).