Up 12.6% year-to-date, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is one of this year’s best-performing developed market currency exchange traded funds. That has not been good news for equity-based Japan ETFs, but there is some goods and that is the yen could be ready to decline.
The yen’s strength has prompted questions regarding just how long the currency will keep soaring and if it is vulnerable to a near-term pullback. Thanks to intensifying speculation that the Federal Reserve is heading toward its first interest rate hike of 2016 next month, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, is on the move higher.
Related: Are Dollar ETFs Ready to Rally?
“In the big picture, we believe the Yen is forming a very large corrective wave pattern – one that began in 2011 and could continue into 2018 or beyond. The first leg of that Japanese Yen wave pattern was the steep decline from 2011 into the low of 2015,” according to See It Market.
“The yen is set to snap three straight months of gains. The BOJ announces its next policy decision on June 16 after refraining from additional easing at the last meeting in late April, opting to take more time to assess the impact of negative interest rates,” according to Bloomberg.[related_stories]
A rising dollar also makes already hot U.S. government debt more attractive to investors, particularly those outside the U.S.