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Japan Outperforms While Manufacturing Growth Is Muted

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Japanese ETFs and ADRs gained on June 23

The iShares MSCI Japan ETF (EWJ) rose 1.15% at the June 23 close, although the Markit Economics’ Japan Manufacturing PMI report showed little change in industrial sector conditions in June. The WisdomTree Japan Hedged Equity Fund (DXJ) also rose 1.48%. These Japan-tracking ETFs have returned 17.44% and 20.90%, respectively, on a year-to-date basis.

Japanese companies’ ADRs (American Depository Receipts) also rose. Sony (SNE) was up 1.67%, the Mitsubishi UFJ Financial Group (MTU) rose 1.65%, and Honda Motors (HMC) rose 1.15%. These ADRs have yielded +51.49%, +34%, and +13.52%, respectively, year-to-date.

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Markit Manufacturing PMI shows little change in June

The flash reading for the Japan Manufacturing PMI deteriorated slightly in June. The index came in at 49.9 for June against May’s 50.9. The preliminary reading for the Japan Manufacturing Output Index stood at 50.5 in June against May’s 51.9. Data released on June 23 was compiled from data collected from June 12–June 19. The final PMI figures for June will be released on July 1, 2015.

The report indicates that operating conditions deteriorated somewhat in June, while production has slowed to a marginal pace in Japan. According to the report, “New orders contracted for the third time this year so far. Subsequently, employment growth was subdued, while buying activity declined.”

Nonetheless, new export orders have recovered, backed by a cheaper yen. The cheaper yen has also helped boost foreign demand for the country’s products. Employment also accelerated, with increased industrial activity to meet export orders.

Japan continues to outperform

Japan has been outperforming all major markets so far this year. The EWJ has delivered a 17.44% return to its investors versus Europe’s (VGK) 9.75% and the US’s (SPY) 3.17%. Please read Can Japan’s Stock Market Sustain Such Growth? for our detailed analysis on the topic.

Stay updated on our latest analysis on the US, the Eurozone, and the world (ACWI) macro environments by visiting Market Realist’s Macro ETF Analysis page.

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