Franklin FTSE Japan ETF [FLJP] Stock Forecast

Hello! This is MarketWatch reporter Isabel Wang bringing you this week's ETF Wrap. In this week's edition, we look at one of the currency-hedged Japan ETFs, which reached its all-time high on Thursday as the yen weakened after the Bank of Japan's historic interest-rate shift.

Franklin FTSE Japan ETF may seem like a solid option for exposure to Japanese equities with low expense ratio and acceptable liquidity. FLJP ETF underperformed against the S&P500 despite the strong rally of the Nikkei 225 index. Lack of FX hedge in FLJP and other Japan ETFs leads to relative underperformance compared to dollar-denominated securities.

Japanese securities have been gaining momentum lately driven by increased foreign inflow helped by improved corporate earnings and reforms in corporate governance. Along with the optimistic outlook by Berkshire Hathaway on the country, look at ETFs with exposure to Japan.

Things were looking tough for the BoJ as recently as this summer, when the country's core CPI bolted north of 4%, far beyond the 2% inflation target that major central banks view as ideal. The Bank of Japan is being reactive to an inflation threat that may very well be in the rearview mirror.

The debate over the future of Japan continues. Because of its small footprint, we often forget the oversized role Japan plays in the global economy.

The IMF, the World Bank, and the United Nations all rank China and Japan as the second and third largest economies on the planet. More of what is occurring in the markets should reflect what is happening in China and Japan which are strongly linked economically.

It is disappointing that labour cash earnings were weaker than expected in Japan, but consumption held up relatively well. Meanwhile, due to the recent spike in market rates and high inflation, the Bank of Japan is expected to change its YCC policy and forward guidance at its October meeting.

As large-cap Japanese ETFs go, the Franklin FTSE Japan ETF is one of the better options, particularly for cost-sensitive investors. Having already outperformed this year, though, valuations look stretched relative to the underlying earnings growth of Japanese large-caps. While there are positive catalysts to the Japanese story, I won't be dipping in anytime soon - not without a meaningful pullback.

After a slow start to asset gathering, U.S.-listed equity ETFs were in vogue during the summer. At the end of August, the asset category had $165 billion of net inflows, more than $125 billion for fixed income.

This year has been one of the contradictions in the U.S. stock market, but in July, Morgan Stanley highlighted several warning signs that suggest a bust may hit U.S. equities soon. Higher-than-usual bond-market volatility, resilient Treasury rates, and the strong U.S. dollar could signal trouble.

Franklin FTSE Japan ETF is a US stock and trading under the symbol FLJP

Franklin FTSE Japan ETF stock price is $29.97 today.

Yes, Franklin FTSE Japan ETF is a publicly traded company.