Battered by the China-led global rout, Japanese stocks made a spectacular comeback in today’s trading session. The Nikkei 225 Stock Average skyrocketed nearly 8%, representing the biggest one-day jump in seven years. Steep gains came after a day when the index crashed 2.4%, wiping out all of the gains made this year.  

Optimism was mainly driven by stimulus hopes in China that could reinvigorate growth in the world’s second-largest economy. China will strengthen its fiscal policy, boost infrastructure spending and speed up the reform of its tax system to support the economy. Though this sparked off a rally in stocks across the globe, the Japanese stocks are leading the way higher (read: 3 Top Japan ETFs to Surge Higher in 2H).

This is because prime minister Shinzo Abe provided an additional boost to the Japanese stock market as it is seeking new reforms including a corporate tax cut to shore up the country’s economy. Abe is looking for a tax cut of at least 3.3% to 31.33% next year, starting April 2016 from the current 34.62% and aims to bring it down to the twenties over the next several years.

Further, the steep drop in recent weeks made the Japanese stocks cheap, compelling investors to scoop up the bargain stocks. As of September 8, Nikkei 225 was trading at 16.4 times estimates earnings, the lowest level since October.

Given an astounding surge in stocks, Japan ETFs are also expected to see smooth trading and investors should definitely tap this opportunity by investing in the top ranked ETFs. While there are a number of funds with a Zacks Rank #1 (Strong Buy) or #2 (Buy), some are deep in red and thus offer attractive buying opportunities at present.

In particular, the large cap centric funds – SPDR Russell/Nomura PRIMETM Japan ETF (JPP – ETF report)SPDR MSCI Japan Quality Mix ETF (QJPN – ETF report), Maxis Nikkei 225 Index Fund (NKY) and iShares MSCI Japan ETF (EWJ – ETF report) – lost in double digits over the past one month. QJPN and JPMV have a Zacks Rank #1 while NKY and EWJ hold a Zacks Rank #2 (see: all Developed Asia-Pacific ETFs here).

Apart from these, Japan hedged funds – iShares Currency Hedged MSCI Japan ETF (HEWJ – ETF report)db X-trackers MSCI Japan Hedged Equity ((DBJP – ETF reportand WisdomTree Japan Hedged Equity Fund (DXJ – ETF report– also seem excellent picks. These ETFs offer exposure to the broad Japanese stock market while at the same time provide hedge against any fall in the Japanese yen. The trio has a Zacks ETF Rank of 1 and is down nearly 14% over the past one month.

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