The going has been pretty rough for Japanese shares this year due to a stronger yen. The outperformance in the currency came despite Bank of Japan’s (BoJ) gigantic stimulus program and the launch of negative interest rates in January (read: Japan ETFs to Buy on Negative Interest Rates).
Two factors have ushered gains on the Japanese currency. The slide in global stock prices on growth worries and the tension in the oil patch bolstered demand for safety. Also, slim chances of frequent Fed rate hikes this year due to moderation in U.S. growth and global market threats have made the greenback a little dull and appreciated yen against the U.S. dollar.
As a result, the Japanese yen has gained about 9.6% against the greenback so far this year (as of May 22, 2016). Though the currency has lost some strength meanwhile, especially after Japan indicated that it may intervene in the currency market to contain the strength in yen and boost exporters, the recent G-7 meet poured water on all hopes (read: Best Performing Currency ETFs of Q1).
How G-7 Meet is A Threat to Japan Shares?
In the G-7 meeting, the U.S. and Japan did not have the same opinion on yen’s recent movement. While Japan said that the recent movement in yen can’t be explained as ‘orderly’, the U.S. feels the opposite, seeing no reason for Japan to intervene in the currency market and devalue yen. Needless to say, such an outcome of the meeting is likely to fuel yen once again.
This along with a massively larger-than-expected trade surplus in Japan for the month of April is expected to drive yen higher in the coming days. Japan's trade balance in April came at 823.5 billion yen ($7.50 billion), trumping economists' forecast for a rise of 492.8 billion yen. Japan registered a trade surplus for the third successive month.
However, investors should note that this solid beat in trade surplus was due to much weaker imports (which plunged 23.3%) than exports (down 10.1%). The fall in exports represented the quickest decline in three months and the seventh consecutive month of decline. With this, one can clearly understand that exports are hurt due to stronger yen and the trend is expected to continue, if the global scenario remains the same.
How High Yen-U.S. Dollar Pair Can Reach?
The JPY/USD pair was 0.0091 as of May 22, 2016, meaning one yen equals to 0.0091 U.S. dollar. Though yen has surged this year, the average value of the currency-pair stands at 0.008852, which is more-or-less in line with the trend observed in the last 10-year period.
Moreover, if we look at the yen-dollar pair from 1990 to 2016, the average comes at 0.009226, as per usforex.com. This is also in line with the recent value. All in all, the recent moves in yen seem within the historic range and are less likely to come out of it given the ongoing easy monetary policies.
Investors should also note that the highest average that the yen saw against the U.S. dollar since 1990 was in 2011 – the year in which Japan was stuck with a tsunami and earthquake. Notably, the U.S. joined hands with Japan and the other G-7 nations in 2011 to jointly send the yen lower. In the present scenario, we don’t see such extreme threats.
Can the Latest Surge Continue?
It seems that the fate of yen now depends on the U.S. dollar. If the U.S. economy comes up with fine data points in the coming month, there is high chance that the Fed will hike rates in a month or two. In that case, the U.S. dollar will gain strength, driving yen lower than the greenback (read: Fed to Hike in June? Expected ETF Moves).
Also, the latest worries pertaining to global growth, China and oil, are showing signs of easing. China’s stock volatility petered out to a 15-month low and easing supply glut in the oil patch brought some relief. So, in the absence any major market turmoil, the urge for safe haven investing may abate a bit.
Plus, with already 9.6% gains seen in yen this year, we do not expect the currency to skyrocket further, though it may remain in the green in the near term. This has put CurrencyShares Japanese Yen ETF (NYSE:FXY) (FXY) – which reflects the price in USD of the Japanese yen – in focus which lost about 0.24% on May 20, but added 0.08% after hours. The fund has a Zacks ETF Rank #3 (Hold) with a high risk outlook.
Bottom Line
The coming two months are packed with events in the Japan and U.S. central banks. Policy divergence in both parts of the world could undermine yen’s strength ahead.
However, FXY has a positive weighted alpha of 11.40. A positive weighted alpha hints at more gains. So, investors, having strong stomach for risks can play this ETF for some quick gains with a short-term notion.
But edgy investors may wait on the sidelines until any material event hits the greenback and yen, and confirms future trading movements. Investors should note that the wide width of Bollinger Bands for FXY is presently indicating rising volatility for the product.
CRYSHS-JAP YEN (FXY): ETF Research Reports
Original post
Zacks Investment Research
Two factors have ushered gains on the Japanese currency. The slide in global stock prices on growth worries and the tension in the oil patch bolstered demand for safety. Also, slim chances of frequent Fed rate hikes this year due to moderation in U.S. growth and global market threats have made the greenback a little dull and appreciated yen against the U.S. dollar.
As a result, the Japanese yen has gained about 9.6% against the greenback so far this year (as of May 22, 2016). Though the currency has lost some strength meanwhile, especially after Japan indicated that it may intervene in the currency market to contain the strength in yen and boost exporters, the recent G-7 meet poured water on all hopes (read: Best Performing Currency ETFs of Q1).
How G-7 Meet is A Threat to Japan Shares?
In the G-7 meeting, the U.S. and Japan did not have the same opinion on yen’s recent movement. While Japan said that the recent movement in yen can’t be explained as ‘orderly’, the U.S. feels the opposite, seeing no reason for Japan to intervene in the currency market and devalue yen. Needless to say, such an outcome of the meeting is likely to fuel yen once again.
This along with a massively larger-than-expected trade surplus in Japan for the month of April is expected to drive yen higher in the coming days. Japan's trade balance in April came at 823.5 billion yen ($7.50 billion), trumping economists' forecast for a rise of 492.8 billion yen. Japan registered a trade surplus for the third successive month.
However, investors should note that this solid beat in trade surplus was due to much weaker imports (which plunged 23.3%) than exports (down 10.1%). The fall in exports represented the quickest decline in three months and the seventh consecutive month of decline. With this, one can clearly understand that exports are hurt due to stronger yen and the trend is expected to continue, if the global scenario remains the same.
How High Yen-U.S. Dollar Pair Can Reach?
The JPY/USD pair was 0.0091 as of May 22, 2016, meaning one yen equals to 0.0091 U.S. dollar. Though yen has surged this year, the average value of the currency-pair stands at 0.008852, which is more-or-less in line with the trend observed in the last 10-year period.
Moreover, if we look at the yen-dollar pair from 1990 to 2016, the average comes at 0.009226, as per usforex.com. This is also in line with the recent value. All in all, the recent moves in yen seem within the historic range and are less likely to come out of it given the ongoing easy monetary policies.
Investors should also note that the highest average that the yen saw against the U.S. dollar since 1990 was in 2011 – the year in which Japan was stuck with a tsunami and earthquake. Notably, the U.S. joined hands with Japan and the other G-7 nations in 2011 to jointly send the yen lower. In the present scenario, we don’t see such extreme threats.
Can the Latest Surge Continue?
It seems that the fate of yen now depends on the U.S. dollar. If the U.S. economy comes up with fine data points in the coming month, there is high chance that the Fed will hike rates in a month or two. In that case, the U.S. dollar will gain strength, driving yen lower than the greenback (read: Fed to Hike in June? Expected ETF Moves).
Also, the latest worries pertaining to global growth, China and oil, are showing signs of easing. China’s stock volatility petered out to a 15-month low and easing supply glut in the oil patch brought some relief. So, in the absence any major market turmoil, the urge for safe haven investing may abate a bit.
Plus, with already 9.6% gains seen in yen this year, we do not expect the currency to skyrocket further, though it may remain in the green in the near term. This has put CurrencyShares Japanese Yen ETF (NYSE:FXY) (FXY) – which reflects the price in USD of the Japanese yen – in focus which lost about 0.24% on May 20, but added 0.08% after hours. The fund has a Zacks ETF Rank #3 (Hold) with a high risk outlook.
Bottom Line
The coming two months are packed with events in the Japan and U.S. central banks. Policy divergence in both parts of the world could undermine yen’s strength ahead.
However, FXY has a positive weighted alpha of 11.40. A positive weighted alpha hints at more gains. So, investors, having strong stomach for risks can play this ETF for some quick gains with a short-term notion.
But edgy investors may wait on the sidelines until any material event hits the greenback and yen, and confirms future trading movements. Investors should note that the wide width of Bollinger Bands for FXY is presently indicating rising volatility for the product.
CRYSHS-JAP YEN (FXY): ETF Research Reports
Original post
Zacks Investment Research
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