October 24, 2008 at 12:00 pm by Tom Lydon
The Japanese yen exchange traded fund (ETF) is soaring to new heights this morning, while the currency backing it is hitting levels not seen in 13 years and producing unheard-of volatility.
A worldwide stock selloff has led to investors dumping high-yielding assets and pay back low-cost loans in Japan, say Ye Xie and Agnes Lovasz for Bloomberg. The unwinding of the carry trade led to the yen surging to its highest point against the euro in six years.
It’s been an overall stellar week for the yen ETF, which is up 4.6% and up 8.3% in one month. The yen itself is up 8.6% against the dollar this week, the biggest gain since October 1998. It’s up 13% against the euro, the biggest weekly gain ever. The euro is down 5.1% against the dollar.
Back in 1995, the yen touched a post-World War II high of 79.75 against the dollar that prompted the G7 to intervene by buying the dollar in order to stabilize the markets. Today, the yen is 93.19.
The flight to the yen makes sense in volatile markets, as it’s considered among the safest currencies, reports Parmy Olson for Forbes. The biggest currency declines this week have been in Europe: the Turkish lira is down 12% against the dollar, the Polish zloty by 12%, the Brazilian real by 11%. Emerging market currencies have fallen between 6% and 7%. The Hong Kong dollar has fared the best, because it’s pegged to the greenback.
The dollar, while being outshone by the yen’s performance as of late, is also making waves as it hits two-year highs. The U.S. Dollar Index broke a seven-year slide in April, and has appreciated 19.4% since its low. It’s still 29% off its high reached in July 2001, however.
Some analysts doubt the dollar can continue, says Trang Ho for Investor’s Business Daily. The PowerShares DB U.S. Dollar Index Bullish (UUP) has been on a tear for awhile now, up 5% for the last two weeks, 11.7% in the last month and up 16.1% in the last three months.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.
Tags: Currency ETFs, FXY, Green ETFs, Japan, Japanese Yen, U.S. Dollar, UUP
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