Exchange traded funds that invest in Japanese stocks were caught up in Monday’s global sell-off as the Eurozone debt crisis continues to bubble over.
The iShares MSCI Japan Index (NYSEARCA:EWJ) slipped 1.7% amid increased speculation that Greece will default.
“Germany and France’s commitment to continue supporting Greece’s European Union membership diminishes the likelihood that it will be allowed to default,” Tim Shroeders of Pengana Capital Ltd. in Melbourne, said, on BusinessWeek. “If Greece avoids default, it lessens any flow-on impact through the global banking system, which in-turn is positive for Asian stocks.”
Any recovery in Japan is dependent upon healthy growth in the U.S. and Europe. Export demand is key for the economy to come back to life after the devastating earthquake and tsunami.
The Bank of Japan had called for a moderate recovery for the economy by the end of the year, and Miyao is sticking to this. However, the consistent rise of the yen and high energy costs are risks to growth, reports Leika Kihara for Reuters.
The Bank of Japan is still ready to intervene and ease policy more if necessary.
“Miyao towed the BOJ’s line on the underlying economy but struck a cautious note on the outlook due to Europe’s debt problems, signaling the chance it may cut its projections in its twice-yearly outlook report in October,” Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, said.
Tisha Guerrero contributed to this article.