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Japanese Yen ETF Keeps Up with Dollar Strength

This article was originally published on ETFTrends.com.

While many other Asian currency have depreciated against a stronger U.S. dollar, the Japanese yen and currency-related exchange traded fund have bucked the trend and eked out a positive return this year.

The Invesco CurrencyShares Japanese Yen Trust (FXY) has gained 1.2% year-to-date, with the JPY now trading at ¥110.64 against the dollar

The yen has appreciated partly due to a slight shift in the Bank of Japan's policy and partly because the relatively safe-haven status of the currency has helped attract defensive bets in light of uncertainty over trade and global growth, reports Joanne Chiu for the Wall Street Journal.

The yen has appreciated 1.5% against the greenback this year, compared to a 4.7% decline in the Chinese yuan, and a 5% drop in commodity-sensitive Australian dollar and the trade-reliant Korean won.

Related: ‘BBJP’ Wows ETF Community With $1.4B AUM After First Month

Japan Central Banks Allows Higher Yields

Analysts argued that these Japanese central bank's decision to allow slightly higher yields on benchmark 10-year government notes helped support the currency.

Furthermore, Japan has returned to solid growth in the past three months ended June, with the economy growing at an annualized pace of 1.9%. Economists anticipate the momentum to continue on higher wages and consumer spending unless the U.S. trade spate worsens. Masafumi Yamamoto, chief currency strategist at Mizuho Securities, argued that Japan is relatively insulated from a potential economic slowdown in China, compared to other Asian neighbors and Australia.

“The Japanese yen shines because it’s considered a safe-haven currency,” which outperformed in previous economic crises, Yamamoto told the WSJ.

However, not all are convinced the yen's strength will last. Adam Cole, chief currency strategist at RBC Capital Markets, warned the yen will weaken as the Federal Reserve continues to raise interest rates while the BOJ sticks with an ultra-easy monetary policy.

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