The WisdomTree Japan Hedged Equity Fund (NYSE: DXJ), 2013’s top asset-gathering ETF, traded slightly higher Monday, but the modest gains were enough to propel the popular fund to fresh highs.
DXJ hit a new 52-week high despite the Japanese yen gaining strength against the U.S. dollar following comments from Japan’s Economy Minister Akira Amari that the weakening yen could have a negative impact on the Japanese economy.
“If the yen extends losses a lot, people’s lives will be negatively affected. It’s our job to minimize that,” said Amari in an interview with a Japanese broadcast outlet, Bloomberg reported.
Prime Minister Shinzo Abe’ campaign to depress the yen while engineering a 2% inflation rate have bolstered the fortunes of Japanese equities and DXJ this year. Investors appear to have confidence that Abe can rescue the world’s third-largest economy from a multi-decade bout with deflation and a strong currency that has crimped exporters’ profits.
That confidence has been displayed through DXJ, among other Japan ETFs. In the past three months, the WisdomTree ETF has surged nearly 28 percent. In early February, DXJ had $2.8 billion in assets under management, which was at the time a fivefold increase from December 2012. The ETF entered Monday with over $10.3 billion in assets, according to issuer data.
Plunging yen
As the yen plummeted against the U.S. dollar, euro and other major currencies over the past six months, frequent calls have been heard that the declines have been too much too quickly. The yen has slumped 20 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, reported Lucy Meakin and John Detrixhe for Bloomberg.
After breaking through resistance at 100 earlier this month, USD/JPY touched 103 for the first time in almost five years last week, bolstering hopes that dollar could rise to 110 against its Japanese rival. Some noted investors have said USD/JPY at 110 would be a “game changer.” [Japan ETF Rally Still Alive]
Structural reforms beyond weakening the yen, including wage changes and bringing more women into the labor force, are among the catalysts that could drive Japanese shares higher, hedge fund manager Dan Loeb, founder and CEO of Third Point, said at the Skybridge Alternatives, or “SALT,” conference earlier this month, according to CNN Money.
Next page: Bank of Japan in focus
Bank of Japan in focus
Amari’s comments may have spooked forex traders, for one day at least, but equity-based ETFs such as DXJ and the rival iShares MSCI Japan Index Fund (NYSE: EWJ) shrugged off the news for modest gains early Monday.
Those ETFs and related funds could be jolted by another imminent catalyst: Wednesday’s Bank of Japan meeting. The central bank’s latest meeting comes on the heels of some decent economic data. Last week, Japan reported a surge in core machinery orders and a surprisingly strong first-quarter GDP number.
The improvement in Japanese numbers is encouraging, and there is a growing feeling in the market that “Abenomics” is starting to bear fruit, Kenny Fisher reported for Oanda.
Additional stimulus from BoJ probably is not in the cards at this meeting, but any evidence the central bank can offer that Abenomics is showing signs of eradicating deflation could be the next jolt for DXJ and other Japan ETFs.
ETF Trends editorial team contributed to this story.