Yen Currency ETF Drops to Fresh Low on Bank of Japan Easing Talk
December 26th, 2012 at 2:33pm by John Spence
CurrencyShares Japanese Yen Trust (NYSEArca: FXY) remains under intense pressure in the wake of incoming Japanese Prime Minister Shinzo Abe’s recent election victory amid rising speculation the Bank of Japan will announce further monetary easing.
FXY, a currency ETF designed to track the movement of the Japanese yen versus the U.S. dollar, was down 1% in afternoon trading Wednesday.
The yen fell to the lowest level against the greenback since late 2010 after minutes from the Bank of Japan’s November meeting showed some determination to push the nation’s currency lower to support the troubled economy, MarketWatch reports.
Abe wants the central bank to boost its inflation target and has pledged to pressure the Bank of Japan to launch unlimited monetary easing to revive the economy. [Japanese Yen ETF Falls to Two-Year Low]
Some investors who are bullish on Japanese stocks but bearish on the yen have been using WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) to express this view. The ETF, which recently rose above $1 billion in assets, invests in Japan but hedges its currency exposure. [Currency-Hedged Japan ETF Surges to $1 Billion After Election]
“I believe Japan’s stocks are attractively priced, and many are optimistic about recently elected Prime Minister Shinzo Abe’s intention to pull Japan out of deflation and correct the strong yen which has punished the country’s exporters,” said Jeremy Schwartz, WisdomTree Director of Research. “By hedging its exposure to the yen, DXJ offers a way to more fully access the return potential of Japanese equities in a weakening yen environment.”
The minutes from the Bank of Japan’s November meeting were released this week. Policymakers debated various options, such as an open-ended commitment to buy assets, Reuters reports.
“The minutes showed a shift in the policy stance of some members a month before the BOJ decided to take additional easing steps and amid strong requests from incoming Prime Minister Shinzo Abe to do more to beat deflation,” Dow Jones Newswires adds.
“It is widely known that Japanese equities offer good value, but the strong yen continues to suffocate growth and sustain price deflation. Hence, the precondition to unlocking the Nikkei’s value is to reflate the economy and end deflation, both of which will require a substantial devaluation in the yen,” analysts at Janney Montgomery Scott said in a note Wednesday.
“Subsequently, the Bank of Japan has responded by becoming more aggressive, with more easing likely for 2013. The announced BoJ balance sheet expansion would be closely in line with the projected expansion of the Fed’s balance sheet in 2013,” they wrote. “Thus, it is difficult to continue to make the case that the BoJ is lagging other developed central banks in terms of the size of its quantitative easing program. These developments are bullish for Japanese equities and may finally weaken the yen on a sustainable basis and help end deflation.”
CurrencyShares Japanese Yen Trust
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. 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.