With the CurrencyShares Japanese Yen Trust (FXY) up 2.2% in the past week and equity-based Japan ETFs suffering as a result, those ETFs and Japanese stocks could use some support from Bank of Japan Governor Haruhiko Kuroda when he speaks when he speaks later tonight.
At this writing,USD/JPY is off 0.64% at 97.68 while the Nikkei 225 is lower by 2.44%, trading below 14,000. The strengthening yen and faltering Japanese stocks during Monday’s Asian session come after the WisdomTree Japan Hedged Equity (DXJ) , the top-selling ETF this year, plunged 5.2% last week. Friday’s 3% loss for DXJ was the ETF’s third consecutive close in the red. [Top-Selling Japan ETF Down as Yen Rises]
Ahead of Kuroda’s speech, which is expected to start at 11:30PM Eastern time, little in the way of fireworks is expected. However, some market observers believe Kuroda could be tempted to steal a page from Federal Reserve Chairman Ben Bernank’s playbook and make comments that comfort skittish investors. [Is Political Stability Good for Japan ETFs?]
“However, looked at from the BoJ perspective both tapering and the subsequent Fed pentimento have been clear negatives for Abenomics. The initially hawkish read on the Fed led to a backing up of Japanese rates that derailed the Nikkei; the subsequent Fed backtracking reinvigorated its dovish credentials and led to a pull back from the Nikkei resurgence,” said Citigroup’s Steve Englander in comments posted on Zero Hedge.
Already in the midst of a massive quantitative easing effort and with interest rates among the lowest in the world, BoJ is seen as having few policy tools left at its disposal with which to bolster Japanese stocks. Still, Japanese Prime Minister Shinzo Abe has pledged to stoke inflation and get the economy back on track, and the Bank of Japan has taken unprecedented steps to weaken the yen. Those efforts have, for the most part, worked as DXJ is up 21.1% this year. [Yen ETF Rally May be Flash in the Pan After Elections]
Kuroda is not likely to announce a material alteration of BoJ’s easing efforts, but he could assuage global financial markets by announcing an increased pace to the central bank’s asset-buying efforts.
“On balance we see some temptation for Kuroda to speak out whether ex cathedra as BoJ Governor or with his personal view Bernanke style so as to get the NKY-JPY train back on track,” said Englander.
Aggressive traders looking to profit from continued weakness in Japanese stocks can consider the ProShares UltraShort MSCI Japan (EWV) , the double-leveraged inverse equivalent of the iShares MSCI Japan ETF (EWJ) .
ProShares UltraShort MSCI Japan
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of DXJ.
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.