ETF Pick of the Week: Japanese Yen

By Carl Delfeld of Chartwell ETF & ETFfolio

While markets are sinking today, our ETF pick released last Friday is up 2%. To get your picks on Friday go to ETF Pick of the Week today.

Here's my ETF pick for this week.

Currency Shares Japanese Yen (FXY)

In a world of market turbulence, investors are seeking save havens to find protection from the storm. The Japanese yen may serve that role for a time.

Reasons for Selection:

1) The Japanese yen is cheap. In real trade-weighted terms, the yen has not been this low since the mid-1980s.

2) It seems unlikely that Japanese banks have much exposure to subprime lending. Total write downs by Japanese banks so far are only about $17bn, versus around $500bn worldwide. With Japanese real estate prices now having come down to earth after 10 years of deflation, the chance of domestic subprime blow-ups are nil.

3) Although Japan’s economic growth is lackluster and the yield on the currency is a paltry 0.5%, the yen is somewhat like that other yieldless traditional store of value, gold which by the way has not been serving that purpose very well this year.

Catalyst: The yen has been used as a funding currency for “carry trades” into higher-yielding currencies. Lehman estimates that Japanese retail investors hold positions in commodities and emerging market currencies worth over $300bn. As these trades are reversed due to investors suffering losses, the money will likely come home.

Tip: If you are looking for other options for Japan exposure, take a look at the new NETS Tokyo Stock Exchange REIT Index Fund (JRE) which was launched on Monday.

Comments

[Ringestad]

How is it possible that a country like Japan can allow their currency to rise so much in one month. They are completely killing their export business and showing the country to be unstable. Looking at yen towards Norwegian Kroner, it has gone from 0.45 to 0.75. Nearly double in a month. Japan needs to stable themself to come to a normal level. Businesses want to buy Japanese products, how is it possible? How can you invest in any Japanese business, when yen is rising so high, they will not be able to stay in business for long if the government doesn't step in. They are shooting themself in the foot.
Regards,
Jo