Yen ETF Bounces After Bank of Japan Decision

January 22nd at 10:37am by John Spence

CurrencyShares Japanese Yen Trust (NYSEArca: FXY) rallied 1.6% in early U.S. trading Tuesday after the Bank of Japan adopted a 2% inflation target but said it won’t begin open-ended asset purchases until next year.

The currency ETF last week fell to its lowest level in over two years on reports the BOJ was considering unlimited asset buying to assist the economy. [Japanese Yen ETF Tanks on ‘Open-Ended’ Asset Buying Talk]

The yen rose the most in eight months versus the U.S. dollar as investors who expected bolder action sooner from the BOJ were left disappointed, Bloomberg News reports.

Japanese Prime Minister Shinzo Abe has pledged to pressure the central bank to launch unlimited monetary easing to revive the economy and beat deflation.

The BOJ said it will start open-ended asset purchases in January 2014.

“What disappoints me was we can see the BOJ’s hesitance to step up monetary stimulus,” said Takahiro Sekido, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., in a Bloomberg article. “Abe will keep pressing the BOJ but today’s decisions indicate that Abe will probably wait for the next governor to make a significant shift in monetary policy.”

“The expectations were so extreme that the BOJ couldn’t meet them, and now we are currently seeing the disappointment and the retracement of those expectations,” added Carolin Hecht, a strategist at Commerzbank AG, in a separate Bloomberg story.

FXY, the yen ETF, was down 12.1% for the three months ended Jan. 18, according to Morningstar. [Currency ETFs: Everyone Hates the Japanese Yen]

The yen’s weakness has helped Japanese stocks and ETFs such iShares MSCI Japan (NYSEArca: EWJ).

Also, WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) has seen inflows of over $800 million year to date. The ETF tracks Japan equities but hedges its exposure to the yen so it won’t be hurt when the Japanese currencies weakens against the U.S. dollar. It is up 21.5% the past three months, compared with a 7.7% for EWJ, which doesn’t hedge its yen exposure. [Japan ETF Benefits from Focus on Exporters, Plunging Yen]

db-X MSCI Currency Hedge Equity Fund (NYSEArca: DBJP) is an ETF following a similar strategy.

CurrencyShares Japanese Yen Trust

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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.

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