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The yen ETF Invesco CurrencyShares Japanese Yen Trust (FXY - Free Report) has lost 0.5% past month (as of Apr 14, 2023) against 3.1% losses in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . The winning trend may prolong ahead if we go by Nomura's head of global FX strategy, Craig Chan’s prediction, as quoted on CNBC.
Chan has expressed high conviction that the Japanese yen may strengthen to 120 per dollar by the end of this year, owing to a shift in the central bank policy. A 120 yen per dollar forecast would mean the currency will boost about 21% from Oct 20′s peak of 151.94.
Inside the Potential Rally in Yen
According to Chan, the forecast is underpinned by Nomura's expectation that the Federal Reserve has peaked in terms of hiking rates, and that the Bank of Japan could modify its yield curve policy. The U.S. March consumer price index and producer price index came in cooler-than-expected.
There are many economists who forecast that the Federal Reserve's rate hiking cycle may come to an end in the near future due to cues of cooling inflation. This, in turn, would weaken the U.S. dollar and may strengthen the Japanese currency yen.
This is especially true given recent data that indicates a potential uptick in economic activity, with Japan's GDP growth rate stagnating quarter-on-quarter in the three months to December 2022, after a 0.3% contraction in the previous period.
Nomura’s Chan also added that there may still be risks associated with the BOJ policy, in addition to the global narrative. The BOJ's new governor Ueda said it was “appropriate” to continue the bank’s current yield curve control (YCC) policy and its negative interest rate policy.
Under Japan’s yield curve control policy, short-term interest rates are kept at an ultra-dovish level of -0.1%, and the 10-year government bond yield at 0.5% above or below zero. This policy is part of the Bank of Japan's efforts to achieve its inflation target and support economic growth.
Not only Chan, Standard Chartered Bank's Asia FX Strategist Divya Devesh also believes that there is a possibility that the dollar-yen exchange rate could reach 120 by the end of this year, as quoted on CNBC. Moreover, the yen is always seen as a safe-haven investment. Given the geopolitical tensions and global growth worries, investors may want to consider keeping track of FXY as a potential investment option.
FXY in Focus
The ETF FXY is a popular investment option for those seeking exposure to the Japanese yen. As a currency-focused ETF, FXY provides investors with a simple and convenient way to gain exposure to the yen without the need for complex forex trading strategies.
FXY tracks the performance of the yen against the US dollar, which makes it an attractive investment option for those seeking to hedge against currency risk. It is also popular with investors who believe that the yen will appreciate against the dollar in the future, as it offers a straightforward way to benefit from potential currency gains. FXY charges 40 bps in fees. FXY has a Zacks Rank #2 (Buy).
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Here's Why Yen ETF Could Win Ahead
The yen ETF Invesco CurrencyShares Japanese Yen Trust (FXY - Free Report) has lost 0.5% past month (as of Apr 14, 2023) against 3.1% losses in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . The winning trend may prolong ahead if we go by Nomura's head of global FX strategy, Craig Chan’s prediction, as quoted on CNBC.
Chan has expressed high conviction that the Japanese yen may strengthen to 120 per dollar by the end of this year, owing to a shift in the central bank policy. A 120 yen per dollar forecast would mean the currency will boost about 21% from Oct 20′s peak of 151.94.
Inside the Potential Rally in Yen
According to Chan, the forecast is underpinned by Nomura's expectation that the Federal Reserve has peaked in terms of hiking rates, and that the Bank of Japan could modify its yield curve policy. The U.S. March consumer price index and producer price index came in cooler-than-expected.
There are many economists who forecast that the Federal Reserve's rate hiking cycle may come to an end in the near future due to cues of cooling inflation. This, in turn, would weaken the U.S. dollar and may strengthen the Japanese currency yen.
This is especially true given recent data that indicates a potential uptick in economic activity, with Japan's GDP growth rate stagnating quarter-on-quarter in the three months to December 2022, after a 0.3% contraction in the previous period.
Nomura’s Chan also added that there may still be risks associated with the BOJ policy, in addition to the global narrative. The BOJ's new governor Ueda said it was “appropriate” to continue the bank’s current yield curve control (YCC) policy and its negative interest rate policy.
Under Japan’s yield curve control policy, short-term interest rates are kept at an ultra-dovish level of -0.1%, and the 10-year government bond yield at 0.5% above or below zero. This policy is part of the Bank of Japan's efforts to achieve its inflation target and support economic growth.
Not only Chan, Standard Chartered Bank's Asia FX Strategist Divya Devesh also believes that there is a possibility that the dollar-yen exchange rate could reach 120 by the end of this year, as quoted on CNBC. Moreover, the yen is always seen as a safe-haven investment. Given the geopolitical tensions and global growth worries, investors may want to consider keeping track of FXY as a potential investment option.
FXY in Focus
The ETF FXY is a popular investment option for those seeking exposure to the Japanese yen. As a currency-focused ETF, FXY provides investors with a simple and convenient way to gain exposure to the yen without the need for complex forex trading strategies.
FXY tracks the performance of the yen against the US dollar, which makes it an attractive investment option for those seeking to hedge against currency risk. It is also popular with investors who believe that the yen will appreciate against the dollar in the future, as it offers a straightforward way to benefit from potential currency gains. FXY charges 40 bps in fees. FXY has a Zacks Rank #2 (Buy).