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.
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The yen’s technical situation currently merits attention.
“After breaking down and out of that very trend channel in 2014, the Yen found a bottoming in 2015 and has spent the past several months in recovery mode. And further, the Japanese Yen rally has brought the currency back to test the underside of the trend channel,” according to See It Market.
Should the yen finally weaken as so many global investors have been hoping, currency hedged ETFs such as the the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ), and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) could rebound.
The currency-hedged ETFs outperform non-hedged funds when the local currency depreciates against the U.S. dollar, but these funds have been underperforming as the JPY surged against the USD this year.
SEE MORE: Hedged Japan ETFs to Capitalize Off Additional Stimulus
“Investor sentiment toward the Yen shows roughly 70% of traders are currently bullish. As sentiment is typically used as a contrary indicator, that’s clearly a bearish headwind for the Yen,” adds See It Market.
A depreciating yen is supporting Japanese markets as a weaker currency bolsters the country’s large export industry.
For more information on the Japanese markets, visit our Japan category.