Japan ETF Rally Still Alive as Yen Weakens

May 13th at 4:20pm by Tom Lydon

Fueled by the Bank of Japan’s aggressive monetary policy, Japanese equities and exchange traded funds have made a robust run, but heavy-weight hedge fund manager Dan Loeb believes there is more to support Japan’s rally.

Speaking at the Skybridge Alternatives, or “SALT,” conference in Las Vegas last week, Dan Loeb, founder and CEO of Third Point hedge fund, stated that he was bullish on Japan’s outlook, reports Stephen Gandel for CNNMoney.

While the BOJ’s new quantitative easing measures is certainly supporting the current Japanese stock rally, Loeb points to other long-term trends. For instance, he believes the new political leadership could create a more efficient economy and improve growth. Specifically, Japan’s new Prime Minister Shinzo Abe has promised to enact reforms that would change wages and bring more women to the workforce.

“It’s the structural reform that we see that will be the big game changer,” Loeb said.

Moreover, Loeb points out that Japanese corporations will continue to profit on a weaker yen, which recently hit the $100 exchange rate.

“We’re really focused on Japan,” Loeb said, reports Gregory Zukerman for the Wall Street Journal. “If the yen goes from 100 to 110 it’s a huge game-changer…there’s a lot of room to go” in the rally for Japanese stocks.

Additionally, Japanese stocks are trading at a cheap 13 times earnings, compared to about 18 for U.S. stocks.

“There’s a possibility of a big rally, and it’s not a bet you have to pay up for,” Loeb added.

Currency traders taken short positions in the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) to capitalize on the Japanese yen’s demise. More aggressive traders can also take a look at a leveraged ETF, the ProShares UltraShort Yen ETF (NYSEArca: YCS). But investors should note that YCS can be extremely volatile. [Japanese Yen ETFs Tumble as Dollar Breaks 100 Yen]

The WisdomTree Japan Hedged Equity (NYSEArca: DXJ) and iShares MSCI Japan (NYSEArca: EWJ) are the two best-selling ETFs in 2013 as investors rode the rally in Japan. DXJ, though, has been outperforming EWJ as the WisdomTree ETF hedges against the depreciating yen. [Japan ETFs Rocket as Nikkei Tops 14,000]

For more information on Japan, visit our Japan category.

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.