Japanese Yen ETF

The Japanese Yen has been gaining ground on the U.S. dollar since last July and has recently accelerated the pace of change.

There are several factors behind the strengthening of the Yen – see John Spence’s recent article “For yen ETF, timing is everything” on MarketWatch for a good summary.

Dollar-Yen Exchange Rate – One Year Chart

As Mr. Spence points out, one potential driver of the trend is rising interest rates in Japan combined with falling interest rates in the U.S. Correlated is the unwinding of the Yen Carry Trade, an investment strategy where investors borrow the Yen at low interest rates and invest in assets based on a currency that pays a higher interest rate. In any case, assuming the trend continues, investors will want a Japanese Yen ETF that provides appropriate exposure.

One option is Rydex’s CurrencyShares Japanese Yen Trust (NYSEArca: FXY). Although the ETF was only recently introduced, it has already attracted $1.3 billion of assets. FXY is designed to track the price of the Japanese Yen net of trust expenses, which are expected to be paid from interest earned on the deposited Japanese Yen. For more information, see the CurrencyShares website.

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