JPMorgan BetaBuilders Japan ETF

BBJP

Market cap $14.4B

ETFs that buy Japanese stocks were rallying Monday, adding to their surge this year, after the weekend election of Sanae Takaichi to lead Japan's Liberal Democratic Party put her on track to become the country's next prime minister.

Solid growth and ongoing shareholder-friendly reforms are driving Japanese equity gains, keeping us overweight. We see the AI theme playing out globally.

I prefer BBJP over EWJ for its lower expense ratio and similar sector exposures, making it a more efficient Japan ETF choice. Tariff risks threaten Japan's export-heavy sectors, especially autos and industrials, despite some natural hedging benefits from an also weakening Yen. These natural hedging benefits are affected by the significant US exposure in geographic mixes, but also the likelihood of harsher competition in remaining markets under reconfigured trade flows.

As the global private equity industry took tentative steps toward recovery in 2024, Japan raced ahead. The value of private equity investment in Japan jumped nearly 41% over the prior-year total in 2024, far outpacing the 25% year-over-year gain in global private equity deal value, according to S&P Global Market Intelligence data.

BBJP is a good way to track Japan's markets. Its sector mix is different from what you see in the US. It's cheap and has outperformed other notable large Japan proxies.

Today's data were a mixed bag, but the Bank of Japan will pay more attention to the sharp rise in Tokyo's inflation. Tokyo consumer prices rose more than expected to 2.6% YoY (vs 2.2% in July, 2.3% market consensus).

The “real” policy rate is massively negative, with the new policy rate of 0.25% far below Core CPI of 2.6%. When QT reaches about ¥3 trillion per month in 2026, it would represent a reduction of its JGB holdings of about 0.5% per month.

Japan has been struggling for some time to generate enough velocity in inflation to escape the gravitational pull of deflation. The story for the rest of 2024 and into 2025 is now centered on whether inflation will be sustained at the BOJ's 2% target.

In March, the Bank of Japan abolished its 8-year-old negative interest rate policy, hiking rates for the first time in 17 years by raising its benchmark rate to 0-0.1%. To combat inflation while also avoiding an excessive surge in interest payments, the BOJ is considering passive quantitative tightening.

We'd rather downplay the weaker-than-expected manufacturing data and focus on a solid recovery in retail sales and a reacceleration in inflation, which will be welcomed by the Bank of Japan. Inflation has been quite choppy due to various government programmes and utility prices.