Until recently, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) was one of this year’s best-performing currency exchange traded funds, but that status started to change for the worse recently amid speculation that the Bank of Japan has more easing efforts left in its tank.
The yen and FXY have been bolstered by investors’ thirst this year safe-haven assets, a desire that appears to be growing stronger in the wake of Great Britain’s decision, revealed late last week, to depart the European Union (EU). That is to say betting against the yen has not only been difficult, but wrong.
Related: Japan’s 2016 Monetary Policy: Mistakes and Missed Opportunities
However, elections in Japan last week underscore the point that FXY’s recent declines could be a sign of things to come. Prime Minister Shinzo Abe’s ruling coalition, like-minded parties and independents won a two-thirds “super majority,” Reuters reported. Abe’s Liberal Democratic Party was one short of winning a simple majority.
The win would allow his administration to push ahead with constitutional reforms, notably restraints on its military. Abe also promised to take action on the economy, with a “swift formulation of comprehensive, bold economic measures.”
[related_stories]On the USD/JPY, daily chart “we can see a persistent downtrend. Recently, there is a bullish divergence between lower lows in the currency but higher lows from the 20-day momentum study in the lower panel. This is not a big bullish divergence covering several months, but it is a start,” according to TheStreet.com.
Investors, though, can position ahead of any further additional stimulus measures through currency-hedged Japan country-specific ETFs. As the name suggests, a currency-hedged ETF strategy helps diminish the negative effects of a depreciating local currency against the U.S. dollar – if a foreign currency weakens against the USD, international investors would generate a lower USD-denominated return. The currency-hedged ETFs would essentially outperform non-hedged funds when the foreign currencies depreciate against the U.S. dollar, but the opposite would also be true if the foreign currency appreciates.
The WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) have been go-to options to access Japanese equities markets while hedging against foreign exchange risks. The weakening yen could also bolster these investment options as the three hedged Japan ETFs all track large Japanese companies, which include exporters that benefit from a weak yen.
Related: Japan ETFs Surge on Stimulus Bets After Ruling Bloc’s Landslide Election Win
Regarding USD/JPY, “With prices touching the lower band and short-term move on the daily chart, we are thinking ahead. It will probably take a while for the yen to reverse direction looking at past turns, but we like to be prepared and early to the party rather than late,” according to TheStreet.
CurrencyShares Japanese Yen Trust
