Yen-Hedged Japan ETFs Soar on Easing Speculation

ETF Trends

Japanese equity ETFs that hedge their exposure to a depreciating yen continued to rally Wednesday as the yen fell to its lowest level against the dollar since May 2010 on reports Bank of Japan Governor Masaaki Shirakawa will step down earlier than planned.

WisdomTree Japan Hedged Equity Fund (DXJ) and db-X MSCI Japan Currency-Hedged Equity Fund (DBJP), which both hedge currency exposure to the yen, are up 27.5% and 29.3%, respectively, over the past three months, according to Morningstar data. DXJ rose to a fresh 52-week high on Wednesday morning.

DXJ is much larger and has reeled in $1.4 billion just so far this year. The fund is third on the list of best-selling ETFs in 2013, according to IndexUniverse data. [Japan Powers Asian Stock ETF Rally]

The iShares MSCI Japan (EWJ), which doesn’t hedge its currency exposure, is up 10.4% the past three months.

The dollar strengthened to its highest level versus the yen in nearly three years as “investors were placing bets that an incoming BoJ governor would take a harder stance on combating deflation and weakening the yen than his predecessor,” the Financial Times reported Wednesday.

Japanese Prime Minister Shinzo Abe, who has put the central bank under pressure to do more to spur the economy, has made it clear he wants a governor who will be bold in easing monetary policy, Reuters reports.

“As far as Japan is concerned they are exceeding market expectations with the pace of policy implementation and that’s going to keep the yen under pressure,” said Ian Stannard, European head of FX strategy at Morgan Stanley, in the Reuters article. [Specialized Japan ETF Doubles in Size as Yen Weakens]

CurrencyShares Japanese Yen Trust (FXY), which follows the movement of the yen against the U.S. dollar, is off about 14% the past three months. [Japanese Yen ETFs and the Carry Trade]

“The Bank of Japan has been trying to kickstart the Japanese economy for nearly 30 years but it always fell short of devaluing the yen. It had tried to create inflation before, but now it is trying to do so by devaluing the yen materially,” said Martin Kremenstein, Managing Director, Americas Head of Passive Asset Management for Deutsche Asset and Wealth Management.

A Deutsche Bank subsidiary is the investment advisor to DBJP.

“The yen’s recent decline has given a real boost to the Japanese stock market but those invested in an unhedged Japanese equity fund didn’t participate as much as those in DBJP,” Kremenstein said in a recent telephone interview. “We think the entire Japanese stock market will benefit from a weaker yen, not just exporters.”

Note: On Thursday, Feb. 7, ETFtrends.com will be hosting a webcast “Take the Yen Out of Japan.” The webcast will feature Jeremy D. Schwartz, director of research at WisdomTree Asset Management. One hour of CFP/CIMA CE Credit is approved. Register now.

WisdomTree Japan Hedged Equity

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The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. 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.

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