Hedged Japan ETFs Strengthen as Yen Weakens for 7th Day

The Japanese yen weakened for the seventh day, bolstering export-heavy Japanese market and currency-hedged country-specific exchange traded funds.

The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) dipped 0.5% as traders trimmed their safe-haven bets in light of an improving U.S. economy and on renewed bets that the Federal Reserve would hike rates. The U.S. dollar gained 0.2% against the yen to ¥113.32 on Monday, strengthening 1.7% since its March 17 low against the Japanese currency.

The iShares MSCI Japan ETF (NYSEArca: EWJ) was 1.6% higher Monday. EWJ has increased 3.8% over the past month but the fund is still down 6.4% year-to-date.

Meanwhile, currency hedged ETFs, which diminished the negative effect of a weaker yen currency, outpaced non-hedged funds. For instance, on Monday, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) rose 2.3%, iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) increased 2.1% and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) gained 1.9%. Over the past month, DXJ was up 4.6%, HEWJ was 4.8% higher and DBJP added 4.9%.

The U.S. economy expanded a better than previously estimated 1.4% in the fourth quarter, fueling bets that the Fed could raise borrowing costs, which helped the USD appreciate against the JPY, Bloomberg reports.

“There’s strength in the U.S. economy,” Yoshinori Ogawa, a market strategist at Okasan Securities Co., told Bloomberg. “There were some views that the U.S. won’t be able to raise rates on economic concern.”