Strong Japanese Yen ETF Puts Country in a Quandary

August 24th at 2:00pm by Tom Lydon

Japan is caught in a deflationary spiral that has left its government scratching its head in search of a solution and its exchange traded funds (ETFs) in the doldrums. The rejuvenated Japanese yen isn’t helping things, either.

The Japanese economy only expanded 0.1% in the second quarter and was overtaken by China as the world’s new number two economy, reports Hiroko Tabuchi for The New York Times. The Japanese yen is also appreciating, diminishing the the returns of Japan’s exports. There is currently little or no talk of currency intervention within the government.

Consumers are staving off expensive purchases, waiting for prices to fall further. The reduced consumption is exacerbating the deflation problem, with companies reducing prices further to outbid their competitors. Additionally, the country is also home to an aging and diminishing population who are more bent on saving than spending. [Currency ETFs: What's In It for You?]

Japan’s economy minister Satoshi Arai stated that there are no definitive steps being taken for an economic stimulus, reports Takeshi Takeuchi for The Wall Street Journal.

Japan is sticking to its autonomous road to recovery and keeping a tight lid on imported goods and foreign investments, relying more on technological innovations to drive its economy, writes Ashoak Updadhyay for iStockAnalyst.

For more information on Japan, visit our Japan category. Broad Japan-focused ETFs may be in for some pain while deflation sorts itself out. Most of them are well below their 200-day moving average (but you can sign up for alerts to be notified of when that changes). CurrencyShares Japanese Yen (NYSEArca: FXY), however, is now trading at 15-year highs against the U.S. dollar. The yen is seen as a low-risk investment in uncertain economic climates, and investors were also emboldened by the Japanese government’s failure to state that it would stem the yen’s climb.

  • iShares MSCI Japan Index (NYSEArca: EWJ)
  • Wisdom Tree Japan Small-Cap Dividend Fund (NYSEArca: DFJ)
  • WisdomTree Japan Equity Income Fund (NYSEArca: DNL)
  • CurrencyShares Japanese Yen (NYSEArca: FXY)

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.