The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is in bad shape and that is good news for a group currency exchange traded funds.
After tumbling nearly 9% over the past month, FXY resides just 7.9% above its 52-week low and more downside is seen for the Japanese currency as the dollar climbs.
The iShares MSCI Japan ETF (NYSEArca: EWJ) is the largest Japan ETF trading in the U.S., but EWJ is not a currency hedged fund.
Currency hedged Japan ETFs include 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). The currency-hedged ETFs are outperforming non-hedged funds as the local currency depreciates against the U.S. dollar.
A depreciating yen is supporting Japanese markets as a weaker currency bolsters the country’s large export industry. Japan currency-hedged exchange traded funds are rebounding as rising speculation of a Federal Reserve interest rate hike later this month fueled a strengthening U.S. dollar and depressed the yen currency.
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 .The yen has been in peril since the U.S. presidential election last month.
“On Election Day in the U.S., it took 105 yen to buy one dollar. Recently, it took JPY114. That’s a sharp move for developed-market currencies, and one that suddenly makes Japanese goods cheaper for overseas buyers,” reports Jack Hough for Barron’s.
Earlier this year, the Bank of Japan extended its stimulus measures, supporting Japanese equities and country-specific exchange traded funds. As part of its expanded stimulus plan, The BOJ decided to increase ETF purchases so its total holdings rose at an annual pace of ¥6 trillion, or $58 billion, up from the current ¥3.3 trillion, Reuters reports.
“A cheap yen won’t make life easier for Japanese consumers, for whom purchases of many imported goods will become more expensive. But it will give a quick boost to exporters, which have a large weighting in the country’s economy and stock market. At the same time, the Bank of Japan is purchasing shares, and profit margins are low but rising, fueling brisk profit growth,” according to Barron’s.
For more information on the Japanese market, visit our Japan category.
CORRECTION: Japan currency-hedged ETF options
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.