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Yen ETF Rally May be Flash in the Pan After Elections


CurrencyShares Japanese Yen Trust (FXY) was up nearly 1% on Monday to test its 50-day moving average but the ETF’s gains may be short-lived after key elections in Japan.

The yen rose against the dollar following after election results revealed Japan’s ruling party didn’t gain an independent majority in the upper house.

“There’s a kneejerk reaction in the yen because some people had hoped the ruling party would win a majority,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi, in a Bloomberg report. “The key will be the policies announced and implemented by the government. If the government is true to its word, and implements the reforms, then that will remain a yen negative.”

FXY was down about 14% year to date heading into Monday’s trading. 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.

“Expectations are strong that the result will pave the way for the government to pursue pro-growth fiscal policies and structural reforms alongside the central bank’s aggressive monetary easing,” Reuters reports. “This may make the yen’s bounce temporary with a dip in the dollar seen as a buying opportunity, traders said.” [An ETF for Weak Yen Winners and Losers]

WisdomTree Japan Hedged Equity Fund (DXJ) and iShares MSCI Japan (EWJ) traded lower Monday.

CurrencyShares Japanese Yen Trust

Full disclosure: Tom Lydon’s clients own DXJ.

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