We spoke about BOJ statements regarding the future past of interest rates in Japan yesterday, which also involved open market actions that the BOJ takes in their investment programs. Those programs involve the purchases of bonds and equities, often involving Japan-linked ETFs.
Of course it is not only the Japanese equity and bond markets that we are watching, but also the Japanese Currency itself, the Yen.
The Guggenheim CurrencyShares Japanese Yen ETF (NYSE:FXY) (Expense Ratio 0.40%) is the “benchmark” ETF product in the space, at about $161 million in terms of current assets under management. There is a much smaller and perhaps irrelevant product known as JYN (iPath JPY/USD Exchange Rate ETN, Expense Ratio 0.40%, $1.7 million in AUM) that populates the “Yen” space as well, but this fund debuted way back in 2007 and trades a scant 700 shares on a daily basis, and appears to have little more than seed capital invested in it, even after all of this time.
The Yen has continued to appreciate against global currencies, notably the U.S. Dollar over the past several months, with FXY within shouting distance of its intraday high of $96.75 from August. A related Currency ETF that we like to check in on periodically is known as DBV (PowerShares DB G10 Currency Harvest, Expense Ratio 0.80%), and this product by design “seeks to track changes, whether positive or negative, in the level of the Deutsche Bank G10 Currency Future Harvest Index,” according to fund literature. Furthermore, DBV:
“is designed for investors who want a cost effective and convenient way to invest in currency futures. The index is composed of currency futures contracts on certain G10 currencies and is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associates with relatively low interest rates. The G10 currency universe from which the Index selects currently includes U.S. Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone, and Swedish Krona.”
DBV does not trade a ton of volume on a daily basis, averaging 41,000 shares daily, but there have been instances where we see larger block trades in any given session, such as the nearly 2 million shares traded in the fund one day in early September. When we look at present holdings within the fund in terms of where the currency future exposure is, we see long positions in the AUD, NZD, NOK (with roughly 33% exposure apiece), and short positions in SEK, EUR, and CHF (with roughly -33% exposure apiece), and noticeably no Japanese Yen exposure presently.