Japan Stocks Outperform Amid Controlled Inflation and Accommodating Monetary Policy

After a long weekend, ETFs invested in Japanese stocks increased by 4.19% as December data confirmed the expected drop in Tokyo's inflation, which is now close to the Bank of Japan's annual 2% target. Tokyo's consumer prices rose 2.1% from a year earlier and it was the second straight month that inflation has slowed. This drop in Tokyo’s CPI, a leading indicator for the country, coupled with gains in heavyweight technology stocks - especially those with ties to artificial intelligence - gave a boost to the MSCI Japan index (up 4.64% for the week).

Although investor sentiment towards Japan was somewhat affected by a disastrous earthquake in the country’s central region, it also led to speculation that the Bank of Japan might have to postpone proposed plans to abandon its ultra-accommodative policies due to anticipated reconstruction efforts post-disaster.

As an illustration, the FT Wilshire Japan Index (FTWJPGCT) gained 3.91% last week while the iShares MSCI Japan ETF (EWJ) performed stronger still with an increase of 4.36%.