ETF Spotlight: CurrencyShares Japanese Yen

Jul.13.11 | About: CurrencyShares Japanese (FXY)

ETF Spotlight on CurrencyShares Japanese Yen Trust (NYSEArca: FXY), part of an ongoing series.

The currency ETF is back near its March high, erasing the losses it suffered in the wake of Japan’s devastating earthquake and tsunami.

Assets: $161.3 million.

Objective: The ETF tries to reflect the performance of the Japanese yen against the U.S. dollar.

Holdings: The fund holds assets in an interest-yielding Japanese bank account.

What You Should Know:

  • FXY has an expense ratio of 0.40%.
  • Currency movements are quick, unpredictable and notoriously difficult to trade.
  • Since the fund holds accounts in Japanese banks, investors will only receive returns of cash along with accumulated change in the strength of the Japanese yen against the U.S. dollar.
  • “With Japanese rates at incredible lows, investors in this fund receive near 0% interest and pay 0.40% a year in expenses to hold the Japanese yen,” according to Morningstar analysts. “Although rates are likely to rise in the future, it would likely provide a disappointing long-term return.”
  • “During good times for the global economy, the incredibly low yield on the yen helps keep it weak as traders sell huge amounts of yen to buy higher-yielding currencies for the carry trade,” added the analysts.
  • The Japanese yen has historically served as a safe-haven asset for investors.

The Latest News:

  • FXY rose close to its 52-week high on Wednesday as the dollar plunged after Fed chief Ben Bernanke repeated the central bank stands ready with more stimulus for the economy if needed.
  • The Japanese yen rallied against the U.S. dollar Tuesday as the U.S. Commerce Department announced that the country’s trade deficit unexpectedly widened $50.2 billion to its largest level in more than two and a half years, reports Annalyn Censky for CNNMoney.
  • FXY was hit hard after the natural calamity struck earlier this year, but has since recovered. See Japan ETF in Focus as Government Says Economy in 'Severe Condition'.
  • Japan’s central bank is growing more optimistic about the economic recovery, and many observers believe the country will be back to pre-quake production levels by the end of fall, writes Eric Dutram for The Motley Fool. Many expect the bank to boost GDP projections above the 3.0% mark.
  • Safe-haven investors sought refuge in the Japanese yen on concern over the threat of the financial contagion spreading in Europe, reports Tetsushi Kajimoto for Reuters.

CurrencyShares Japanese Yen Trust - (click chart to expand)

Max Chen contributed to this article.

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.