ETFs for Betting on a Japanese Recovery

NEW YORK (TheStreet) -- The world's second largest economy has been struggling to get back on its feet and emerge from its worst recession since World War II. However, recent data suggest that Japan's recovery efforts at last may be reaching households and that its economy at last could be starting to stabilize.

According to Japan's Ministry of Economy, Trade and Industry, consumer demand and spending have been on the rise. Higher demand for automobiles, energy and machinery has pushed retail sales up in February, marking the second straight month of increases.

In fact, despite negative publicity and suspension of U.S. production for five days, the world's largest automaker, Toyota Motor Corporation(TM), boasted an increase in production in nearly all of its regions. In fact, Toyota boosted output 83% from a year earlier, and February was the seventh straight month the automaker has witnessed jumps in production.

This trend has further trickled down to automakers Honda Motor Company(HMC) and Nissan Motors. Honda is reporting production increases of nearly 49% from a year earlier, and Nissan's production is up nearly 72%.

Other major Japanese corporations appear to be seeing the light at the end of the tunnel. Japanese telecommunications giant Nippon Telegraph and Telephone Corporation(NTT) recently reported an increase in quarterly revenue of 2.4% and an increase in operating margins to 11.9%.

Other signs that recovery efforts are positively affecting households include a decline in the unemployment rate to a 10-month low of 4.9%, a slowdown in declining wages, an increase in consumer confidence and a surge in exports by nearly 45% over a year ago.

Some exchange-traded funds for capitalizing on these trends include:

The iShares MSCI Japan Index Fund(EWJ).

The iShares S&P/TOPIX150 Index Fund(ITF).

The WisdomTree Japan Total Dividend Fund(DXJ).

Although it appears that Japan's economy is heading in the right direction, it is important to recognize that strong deflationary pressures continue to loom over the nation. After all, the country's core consumer price index recently dropped for a 12th consecutive month.

A good way to protect against this risk, and the inherent risks that come with investing in equities, is through the use of stop losses or an exit strategy that identifies price points at which an upward trend could come to an end. Such a strategy can be found at www.smartstops.net.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

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