The Japanese yen exchange traded fund continues to weaken, with the currency depreciating to a five-year low against the greenback, as traders speculate on more aggressive Bank of Japan stimulus measures.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is down 0.5% Thursday. FXY is down 17% year-to-date.
The Japanese yen touched 104.84 per dollar earlier Thursday, the weakest since October 2008. It is currently hovering around 104.71. The currency has depreciated 17.2% agains the U.S. dollar in 2013.
The yen currency is depreciating after Bank of Japan minutes revealed one board member pointing out that a slowdown in growth could represent a downward shift in trend, Bloomberg reports.
“This definitely means a further slowdown in growth will force the BOJ to be even more aggressive,” Sireen Harajli, a strategist at Mizuho Bank, said in the article. “We see further strengthening of the dollar against the yen.”
The Bank of Japan has enacted a looser monetary policy to boost inflation and stimulate economic growth after years of stagnation and deflation. However, the lackluster growth so far could force the BOJ to continue to inject money into the system.
“The fact that BOJ members are concerned that improvement in growth, jobs, and consumer prices may not be as robust as before signals they will take some kind of measures going forward,” Takahiro Sekido, who worked at the BOJ before joining Bank of Tokyo-Mitsubishi UFJ Ltd. as a Japan strategist, said in the article. “Dollar-yen could test 105 as economic data in the U.S. continue to improve.”
As the yen weakens and the Japanese economy expands, investors can take a look at yen currency-hedged Japan equity ETFs, like the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), which jumped 35.9% and 44.0%, respectively, year-to-date. In comparison, the iShares MSCI Japan ETF (NYSEArca: EWJ), a non-currency hedged ETF, rose 22.0%. [Slumping Yen a Boon for Japan ETFs]
The currency-hedged Japan equity ETFs will outperform a non-currency hedged ETF when the Japanese yen depreciates against the U.S. dollar.
CurrencyShares Japanese Yen Trust
For more information on Japan, visit our Japan category.
Full disclosure: Tom Lydon’s clients own DXJ.