Yen-Hedged Japan ETFs Soar as Nikkei Tops 15,000
May 15th, 2013 at 8:26am by Tom Lydon
Japan’s main stock index rallied more than 2% on Wednesday as the Nikkei 225 climbed above 15,000 for the first time since 2008.
After years of languishing in stagnation and deflation, Japanese markets are back to financial crisis levels. With the Bank of Japan sticking to its accommodative measures, investors can take a look at two Japan exchange traded funds that hedge against a depreciating yen currency.
Investors who hold Japanese equities are exposed to currency risks – a depreciating yen will diminish the performance once converted to U.S. dollars. However, Japan yen-hedged stock ETFs help investors capture the upside while mitigating the negative effects of the weaker yen, including the The WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP). [A Closer Look at Two Japan ETFs that Hedge the Yen]
Under the new government led by Prime Minister Shinzo Abe, the country is actively fighting against deflation and economic malaise through monetary policies. The central bank will double its holdings in government bonds and double the amount of money in circulation, writes Nellie S. Huang for Kiplinger.
Consequently, the Japanese yen is back above 100 to the U.S. dollar, depreciating almost 22% over the past six months, reports Bruce Einhorn for Bloomberg. [Japan ETF Rally Still Alive as Yen Weakens]
Meanwhile, the Nikkei 225 is soaring as larger Japanese exporters project higher overseas profits on the weakened currency. [Japan ETFs Rocket as Nikkei Tops 14,000]
While the Japanese equities are now trading around 16 times expected earnings for 2013, slightly higher than the U.S. market’s P/E of 14, profits are expected to rise 30% this year due to the weakened yen, according to Alec Young, global equity strategist at S&P Capital IQ.
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