Donald Trump’s victory has been good for Japanese markets, with currency-hedged country-specific ETFs attracting greater attention as the yen currency weakens against the U.S. dollar.
“We have seen big inflows to hedged Japan,” Abby Woodham, ETF Strategist at Deutsche Asset Management, told ETF Trends in call.
For instance, the iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) saw $85.6 million in net inflows and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) attracted $72.7 million over the past week, according to XTF data. In contrast, the non-hedged iShares MSCI Japan ETF (NYSEArca: EWJ) experienced $66.9 million in outflows.
Supporting the Japan trade, the yen currency has weakened to ¥109.96 against the greenback from ¥104.46 prior to the election. Despite the Bank of Japan’s attempts at devaluing its currency through aggressive quantitative policies, the JPY has been relatively strong against the USD for most of the year, trading under ¥100 against the dollar in August.
“The BOJ should thank Trump personally,” Woodham added.
The weakening yen has also helped strengthen the Japanese stock market as the economy is heavily reliant on its export industry.
[related_stories]Looking ahead, with yields on benchmark 10-year Japanese government bonds now back to 0% and rising, the Bank of Japan could even expand on its quantitative easing program to maintain its 0% target, Robert Bush, ETF Strategist at Deutsche Asset Management, told ETF Trends.
“The BOJ has to buy more JGBs to keep yields down, and they may even buy more than originally planned and increase more QE or flood yen to the market,” Bush said.
The BOJ on Thursday stated that it plans to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of its policy framework, signalling its commitment to fight rising yields, reports Megumi Fujikawa for the Wall Street Journal.
Global yields have jumped on expectations that the presidency of Donald Trump would fuel inflation and growth. However, the BOJ could step in to keep the recent spike from getting out of hand.
“Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem,” Bank of Japan Gov. Haruhiko Kuroda said.
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