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?]

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