The Japanese yen exchange traded fund (ETF) has surged this year by close to 5%, putting it at a pivotal point. Either safe-haven seeking by investors could push it further upward or political uncertainty could weigh it down.
The news of political uncertainty may put an end to the yen rally, as traders are worried that a drop in equity prices could increase the chance of a double-dip recession. James A. Hyrczyk for Forex hound says that Japanese equities broke after the nation’s ruling party lost more seats than expected in Sunday’s upper-house elections.
It’s earnings season for Japanese corporations in the next few weeks, and investors are seeking related ETFs to gain exposure to these companies. Don Dion for The Street reports that investors looking at Japan should take the yen’s strength against the U.S. dollar into consideration when planning an ETF investment.
For instance, iShares MSCI Japan Index (NYSEArca: EWJ) is unhedged to currency fluctuations, so a strengthening in the yen against the dollar will translate into an equal percentage gain in EWJ, before the performance of equity holdings is taken into account. As the yen has gained against the U.S. dollar, this may be a helpful tool. [Asia ETFs: Developed or Emerging?]
An ETF to hedge against currency fluctuations so that investors are exclusively exposed to the equity holdings in its portfolio is the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ). Investors who are new to Japan can choose between EWJ and DXJ depending on which way they think the yen will move against the dollar over the course of their investment time horizon. [Why Japan Is on the Radar.]
If you’d like to play the yen on its own, either straight or as a leveraged play, our ETF Analyzer reveals several yen-focused ETFs:
- CurrencyShares Japanese Yen Trust (NYSEArca: FXY)
- ProShares Ultra Yen (NYSEArca: YCL)
- ProShares UltraShort Yen (NYSEArca: YCS)
- WisdomTree Dreyfus Japanese Yen (NYSEArca: JYF)
For more stories about Japan, visit our Japan category.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Tisha Guerrero 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.