The Bank of Japan’s surprising increase of its already massive monetary stimulus boosted investor confidence all over the world in early November. This is especially true for Asian stocks which started to wane on the QE closing and the rate rising concerns in the U.S.

Notably, the Japanese economy presently is in a technical recession as its GDP fell 7.3% in Q2 and 1.6% in Q3. In an effort to fight weakening growth and boost consumer prices, Japan’s central bank announced on October 31 that it would enhance its asset buying program to 80 trillion yen a year from the previous rate of 60–70 trillion yen.

Though the latest move clearly pointed to a setback of 'Abenomics' – a monetary and fiscal firepower – introduced by Prime Minister Shinzo Abe, global markets might ignore the apparent letdown and join the rally to cash in on cheap money in the days to come (read: Introductory Guide to Japan ETF Investing).

Though the Japanese stocks have shed prior gains as soon as the Q3 numbers were out on November 17, we expect investors to focus more on beefed-up accommodative measures in the coming weeks.

If this was not enough, Shinzo Abe is considering a delay in another consumption tax hike from 8% to 10%, which was slated for October 2015. Notably, in April, the nation executed a tax increase from 5% to 8% and suffered a slowdown in private consumption. April’s tax hike pushed Japan to its deepest slump during Q2 since the 2009 global financial crisis.

Thus to revive the sagging economy, BoJ opted for another round of liquidity injections. In any case, liquidity injections have always been great tools for Japanese policy makers as it devalues the Japanese currency, the yen. Since Japan is an export oriented economy, a weaker currency always plays a vital role in helping Japanese companies operating abroad such as Toyota Motor Corp. (TM) and Honda Motor Co Ltd (HMC) in repatriating more money earned in dollar terms.

A probable tax delay has already taken the Nikkei – key benchmark index of Japan – to a seven-year high while fresh stimulus pushed the yen to a seven-year low in early November. While this sounds great for many economies, two countries and the related ETFs seem to be at risk due to the BoJ decision. Below, we highlight the cases in detail (read: 2 Hedged Japan ETFs to Buy After the Surprise BOJ Stimulus).

South Korea

Like Japan, the South Korean economy also thrives on exports, as half of the nation’s output is dependent on it. South Korea exports a major part of its goods to the European and U.S. markets. While a long-drawn-out economic weakness in the Euro zone has already hurt exports from South Korea due to shrinking demand, the nation is now losing on currency competitiveness to Japan (read: Buy These 3 Inverse Currency ETFs for Profits in Q4).

There are several South Korean companies namely Samsung Electronics, Hyundai Motor, LG Corp. and Daewoo which have big export markets. Per Bloomberg, the further weakening in the yen will put pressure on South Korean exporters making them “less competitive compared with their Japanese rivals.”

Not only this, in a bid to depreciate their currencies and maintain export competitiveness, several concerned nations might enter into currency intervention programs, per Bloomberg.

Meanwhile, the Korean government unveiled an $11 billion stimulus package this year to bolster its weakening economy. Slowing growth in China – one of the largest trading partners, uneven recovery in most developed nations and a sharp rise in the Korean won weighed upon the country’s exports.

The greenback gained about 2% strength in the first 13 days of November with respect to the South Korean currency, while added about 4.1% gains against the yen. On the other hand, the won strengthened about 10% against the yen following the BoJ’s announcement of fresh stimulus. In a nutshell, just as the Korean economy started to gather steam thanks to its stimulus measure, BOJ announcement put the nation’s stocks and related ETFs at risk.

This situation puts South Korean ETFs including iShares MSCI South Korea Capped ETF (EWY), Korea KOSPI 200 ETF (HKOR) and WisdomTree Korea Hedged Equity Fund (DXKW) in focus.

Taiwan

Per Bloomberg, the second export-driven nation that could be hit by the weakening of the yen is Taiwan. Taiwanese dollar too gained about 5.3% against the yen since the Japanese easing announcement. Taiwan derives around 70% of its GDP from exports (read: Strong Foreign Inflows Put Taiwan ETFs in Focus).

Taiwan houses one of the largest semiconductor companies in the world – Taiwan Semiconductor as well as the largest manufacturer of notebook computers in the world – Quanta Computer. As a result, iShares MSCI Taiwan ETF (EWT) and Taiwan AlphaDEX Fund (FTW) should be watched closely in the coming months should the slide in yen persist.

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