ETF Spotlight: Japan Fund DXJ Climbs as Yen Weakens

ETF Spotlight: Japan Fund DXJ Climbs as Yen Weakens

The fund has risen 27% year-to-date.

ETF.com
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Contributing Editor
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Reviewed by: etf.com Staff
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Edited by: Ron Day

The WisdomTree Japan Hedged Equity Fund (DXJ) has jumped more than 27% year-to-date as the Japanese yen has weakened to a near quarter century low. 

DXJ was up about a half a percentage point on Thursday, according to etf.com data. The yen's value against the U.S. dollar this year has dipped to its lowest level since 1990, according to MarketWatch data, with one dollar now equal to about 160 yen. At the start of the year, a dollar was worth about 140 yen; back around 2011-12, the dollar fetched just over 75 yen. 

"Wide interest rate differentials between the U.S. and Japan are responsible for the yen’s decline," said Sumit Roy, etf.com senior analyst. "The trend is unlikely to reverse until the Fed starts cutting rates or the Bank of Japan lifts rates more aggressively."

DXJ was not the only fund betting at least partly against the yen to spike recently. 

ProShares UltraShort Yen ETF (YCS), a 16-year-old fund that provides two times the inverse multiple to the daily performance of the yen against the dollar, is up 38% year-to-date. 

Tracking an Index of Japanese Stocks

The fund, which tracks an exporter-focused dividend index of Japanese equities and is hedged for currency fluctuations between the dollar and yen, aims to gain from increased Japanese economic activity stemming from the diluting of its currency. It selects export-oriented, dividend-paying Japanese firms of all capitalizations, specifically those that generate less than 80% of their revenue from Japan. 

These stocks must be traded on the Tokyo Stock Exchange. The fund then weights the selected securities by dividends and then hedges its JPY exposure. In employing this hedging strategy, the index sells JPY forward contracts on a monthly basis. 

DXJ, which debuted in June 2006, has about $5 billion in assets under management. It holds about 50% in short positions. Its portfolio includes roughly 2% allocations in Mitsubishi UFJ Financial Group, Inc., Toyota Motor Corp., and Japan Tobacco, Inc., according to etf.com.

James Rubin is a contributing editor for etf.com, where he produces the Morning Exchange and Weekly Exchange newsletters. A longtime financial writer, editor and book author, he formerly held positions as a news and markets editor for the Americas at CoinDesk, where he focussed on cryptocurrencies. 

He provided editorial guidance for a Wall Street Journal best-selling book on Bitcoin and oversaw a startup newsroom focused on digital financial assets. He has edited for TheStreet and Unchained, where he wrote daily news stories about the trial of fallen crypto entrepreneur Sam Bankman-Fried. His writing has also appeared in The Hollywood Reporter, Forbes.com, AdWeek, Bankrate, The Financial Brand and The Wall Street Journal. He has also written for Forbes Insights and the Economist Intelligence Unit, including papers presented at World Economic Forums in Davos and Mumbai. 

James is the co-author of The Urban Cyclist’s Survival Guide (Triumph Books) and has been interviewed about bike safety on a number of NPR affiliates. In a prior career, Rubin was a world-ranked tennis player, once competing in Wimbledon’s qualifying rounds. He speaks fluent German and is a graduate of the Columbia University Graduate School of Journalism and received his BA at Columbia University.