3 ETFs for Playing a Cheap Yen

Includes: DBV, FXY, ICI
by: Tom Lydon

The Japanese yen has long been famed for its cheapness, making it the key ingredient in any carry trade recipe. While the yen is still weak, the currency and its exchange traded fund might have some resilience in its back pocket.

Then yen took some lumps over the last 15 years. Japan has a huge trade surplus and its citizens would rather save than spend. One top of that, exports from the country boomed and the carry trade took off and sent the yen down another 45% between 1995 and 2007, reports Stephen Gallo for The Financial Times. [How to Play the Carry Trade With ETFs.]

The tide turned for a while; Japan’s exports are on the decline and the country’s population is older. Both have eroded yen outflows and have lent strength to the currency. But now, says Mike Kulej at iStockAnalyst, the yen has once again become the cheapest currency to borrow. [3 Things Japan Needs Now.]

Miho Nakuchi for MarketWatch reports that market players who bought the safe-haven Japanese yen did so on growing speculation that the European Union isn’t likely to announce any more specifics on how to solve Greece’s debt problem after the E.U. finance ministers’ meeting. [ETFs to Play Japan.]

  • PowerShares DB G 10 Currency Harvest (NYSEARCA:DBV): DBV can hold positions in any of the following 10 currencies: The U.S. Dollar, the Euro, the Japanese Yen, the Aussie, Canadian and New Zealand Dollars, the Norwegian Krone, the Swedish Krona, the British Pound and the Swiss Franc. DBV tracks an index made up of long futures positions on the three G10 currencies associated with the highest interest rates and short futures positions on the three currencies associated with the lowest interest rates.

  • iPath Optimized Currency Carry ETN (NYSEARCA:ICI): ICI tracks the Barclays Intelligent Carry Index, which also follows the G10 currencies. Note that ICI is an exchange traded note, so it’s a debt instrument backed by the credit of the issuer.

  • CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)

Disclaimer: Tom Lydon is a board member of Rydex|SGI.