With the yen tumbling and the dollar surging, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) is higher by 7.3% over the past month. 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.
Market observers argue that the greenback will maintain its momentum as more traders anticipate the Federal Reserve to hike interest rates 25 basis points in December.
As markets anticipate a higher chance of a Federal Reserve rate hike, the yen currency has weakened against the U.S. dollar and bolstered export-heavy Japanese markets and country-specific exchange traded funds.
“Demand for DXJ will continue to improve as the Japanese Yen carry trade likely has legs. Since the election, USD has strengthened roughly 8% vs JPY. We have seen this playbook before and it is a strong tailwind for DXJ, which should see flows continue to improve,” according to the Macro Risk Advisors seen in Barron’s.