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.”[related_stories]
Market observers may also be positioning ahead of further fiscal stimulus measures. Prime Minister Shinzo Abe could release a package of new spending measures on Tuesday to support the economy and he could allow the government to finance more projects this year, according to the Nikkei newspaper.
The new package could come with a range of stimulative measures, including shopping vouchers, increased pay for nursery school teachers and public works projects, Asia Times reports. Additionally, Abe’s administration is working on a stimulus package of 10 trillion yen and whether to proceed with a planned sales tax hike.
WisdomTree Japan Hedged Equity Fund