Due to one of the largest quantitative easing programs courtesy of any developed market central bank, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) has tumbled nearly 27% over the past three years. However, the yen’s tide could be turning as investors seek ought safe-haven investments amid a bout global market volatility to start 2016.
FXY has climbed more than 2% to start 2016. Japanese government officials also remained optimistic and confident that a recovery was already under way, especially as a dip in inventories was the major drag on the economy. A drop in inventories cut 2.1 percentage points from total growth. This could turn positive in coming months as companies usually raise output when inventories are low, which can lead to faster growth for the quarters ahead.
More upside could be on the way for the yen. At least that is the bet some professional traders are making.
“Positions that profit from yen gains against the dollar outnumbered bearish positions by a net 4,103 contracts in the week to Jan. 5, according to data from the U.S. Commodity Futures Trading Commission. That’s the first time since October 2012 the data haven’t shown net short positions,” according to Bloomberg.
Still, the Bank of Japan looms large for the yen. Bank of Japan could extend quantitative easing to prop up growth and inflation. Consequently, investors may look to the Japanese markets with a currency-hedged country-specific exchange traded fund that will help diminish foreign exchange risks. Investors should diversify into international markets, like Japan, to capture potentially greater growth opportunities abroad, but people should also keep in mind potential currency risks as the U.S. dollar strengthens.
“The yen surged at the start of this year as investors sought safe assets while concern about Chinese economic growth roiled global financial markets. The Japanese currency has fallen for the past four years as policy makers carried out unprecedented stimulus to spur inflation,” according to Bloomberg.
The rising yen comes as Japan’s economy begins to stumble, which has added to speculation about the success of the so-called Abenomics growth program. For instance, recent Japanese government data revealed that consumer prices fell for the first time in over two years in August, a setback to the administrations fight against deflation.
CurrencyShares Japanese Yen Trust
