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Hedged Japan ETFs May Shine on Efforts to Weaken the Yen

Consider the yen via Currency Shares Japanese Yen Trust (FXY) in 2014. With all of the liquidity that the BOJ had supposedly pumped into the country's economy -- with the U.S. Federal Reserve scaling back on its asset purchases in a modest effort of de facto tightening -- with one of the worst contractions in Japan's GDP in many years -- wouldn't one expect FXY to fall further in value? Instead, it is holding onto modest gains achieved early in the year.

FXY 2014

Courtesy of

Granted, investments from the yen to the dollar to German bunds to gold to U.S. Treasuries have all benefited from "risk-off" demand year-to-date. Blame it on a five-and-a-half-year equity bull market or even profit taking on perceived overvaluation. Heck, express concern about the sheer number of military engagements in geopolitical hot spots around the world.

Yet, it is also possible that the yen's 25% slide has run its course until the BOJ decides to create more electronic money. And if yen short sellers or Japanese equity owners had any sway over bureaucratic decision-making, more yen would be swirling about and benefiting Japanese exporters today.

Unfortunately, Japan has several additional problems when it comes to worldwide investor desire to own shares in its corporations. For one thing, few people seem to believe that economic growth can be sustained in a country where aging demographics and the worst debt-to-GDP ratio in the developed world exists. It follows that foreigners tend to think short-term when investing in the Nikkei Index, especially after its quarter-century of futility.

Secondly, Japanese citizens have been growing resentful of wealthier people and corporate shareholders benefiting from the asset price inflation, while they themselves do not feel that they're escaping the grips of recessionary pressures. (Hmmmmm... there's a sentiment that sounds familiar.)

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