DXJ is also implementing an index methodology change after Friday’s close designed to add multinational companies that generate more revenue from global markets rather than the local Japanese market.
For example, companies that derive more than 80% of their revenue from Japan will be excluded from the index.
“We believe Japan-based multinational companies that generate the bulk of their revenues from markets outside of Japan are more likely to benefit from a weakening yen,” WisdomTree (NasdaqGM: WETF) says in a white paper. “Companies with a purely Japanese revenue base, on the other hand, are unlikely to benefit from a weakening yen, especially if imported materials are part of their production process. Essentially, while a weakening currency can make exports more attractive for foreign consumers, it can also make imports less attractive, as these prices would tend to increase as the currency weakened.”
WisdomTree’s director of research Jeremy Schwartz in a telephone interview said there tends to be a negative correlation between the yen and Japanese stocks.
“DXJ removes the currency effect from the equation for investors,” he said. “Unhedged Japanese yen ETFs can get a dampening effect from a weaker yen when stocks rise but the currency weakens. We think DXJ is a better implementation.”
The fund could also be used to bet against the yen if investors think the Bank of Japan will ease further, rather than shorting yen ETFs or using inverse currency ETFs.
“The equity market could go up more than the yen weakens,” Schwartz said.
WisdomTree Japan Hedged Equity Fund
