- Some professional investors and traders seeing more upside coming for the Japanese currency
- The dollar has been weakening against other developed currencies
- Amid elevated global equity market volatility this year, the yen has been a safe-haven destination
With global investors favoring safe-haven assets this year, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) has climbed 5.5% year-to-date. Some professional investors and traders see more upside coming for the Japanese currency.
The dollar has been weakening against other developed currencies, the greenback has strengthened against emerging market currencies, notably against commodity producing countries and China. However, the greenback has recently shown signs of perking up, but that is not deterring some traders from making bullish yen bets.
“Positions that profit from gains by the currency exceeded those that gain from a slump by a net 64,333 contracts in the week ended March 8, a report from the Commodity Futures Trading Commission showed Friday. That’s up from 59,625 contracts a week earlier,” reports Rachel Evans for Bloomberg.
Japanese equities have struggled after the Bank of Japan unveiled negative interest rates in response to the volatile global markets that has added to its ongoing deflationary risks, bolstering Japan country-specific exchange traded funds and pulling the rug from under the yen currency.
Amid elevated global equity market volatility this year, the yen has been a safe-haven destination, another factor weighing on Japanese stocks and the corresponding ETFs.
The negative yield on a bond essentially means people are paying for the privilege of lending to the Japanese government. With yields now down into the negative territory, it also suggests that there is continued demand for JGBs. Investors’ thirst for JGBs could keep a lid on equities, but obviously the options market sees things differently.
“The yen has rallied against 15 of its 16 major peers this year, benefiting from a spell of risk aversion that roiled financial markets on concern China’s slowdown may damp global economic growth. The currency shook off a central-bank decision to cut interest rates into negative territory in January, forcing strategists including Barclays Plc, the world’s third-largest currency trader, to change their forecasts,” according to Bloomberg.
In an effort to prop its local equity market, the Bank of Japan said earlier this year it would buy ETFs that track the JPX-Nikkei 400 Index. The JPX-Nikkei 400 Index was launched in January 2014 as a means of revitalizing the Japanese equity market. The JPX-Nikkei 400 Index employs a rigorous screening process based on return on equity, cumulative operating profit and market capitalization to select high-quality, capital-efficient Japanese companies.
CurrencyShares Japanese Yen Trust
