Inverse Japanese Yen ETF Explained with Investment Insights

Inverse Japanese Yen ETFs are designed to profit from a declining Japanese yen.

These funds typically use a variety of strategies to achieve their inverse performance, including futures, options, and swaps.

The most well-known inverse Japanese Yen ETF is the ProShares UltraShort Yen ETF, which seeks to return the inverse of the daily performance of the Japanese yen.

The ProShares UltraShort Yen ETF has a daily tracking error of up to 10%, meaning its performance may deviate from the benchmark by up to 10% on a daily basis.

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The Inverse Japanese Yen ETF is a type of investment product that allows you to profit from a decline in the value of the Japanese yen. It's essentially the opposite of a regular yen ETF.

The ProShares Short Yen ETF (YCS) is an example of an inverse Japanese yen ETF. This fund aims to provide the opposite performance of the yen, meaning that if the yen goes down in value, this fund will likely go up.

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If you're interested in investing in an inverse yen ETF, it's essential to understand how these funds work and their risks. Inverse yen ETFs use various strategies to profit from a decline in the yen's value, such as short selling or derivatives.

The ProShares Ultra Yen ETF (YCL) is another example of an inverse yen ETF, but it's worth noting that this fund is designed to provide twice the daily performance of the yen's decline. This means that if the yen declines in value, this fund will likely double that decline.

If you're new to investing in inverse yen ETFs, it's a good idea to start with a small position and gradually increase your investment as you become more comfortable with the product.

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You can use inverse Japanese Yen ETFs to protect your portfolio against currency risk, particularly if you hold Japanese stocks or bonds. This is because inverse Yen ETFs, such as ProShares UltraShort Yen ETF (YCS), provide 2x inverse exposure, meaning they increase in value when the Yen appreciates against major currencies.

Related reading: Japanese Yen against Dollar

To diversify your portfolio, consider using Yen ETFs like Invesco CurrencyShares Japanese Yen Trust (FXY), which is a physically-backed yen ETF. This can help reduce your dependence on the U.S. dollar.

Popular investment strategies for Yen ETFs include hedging and diversification. Hedging with Yen ETFs can protect your portfolio against currency risk, while diversification can reduce your dependence on the U.S. dollar.

Here are some popular Yen ETF options:

Diversification with Yen ETFs can reduce dependence on the U.S. dollar and protect against currency risk for investors holding Japanese stocks or bonds.

Yen ETFs offer a powerful tool for portfolio diversification and currency risk hedging, particularly for investors heavily weighted in U.S. dollar assets.

For instance, the Invesco CurrencyShares Japanese Yen Trust (FXY) provides direct exposure to ¥ and tracks its price performance against the USD.

Popular Yen ETF options include Invesco CurrencyShares Japanese Yen Trust (FXY), ProShares Ultra Yen ETF (YCL), and ProShares UltraShort Yen ETF (YCS).

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The Invesco CurrencyShares Japanese Yen Trust (FXY) has a 52-Week Range of $77.42–$87.58 and an expense ratio of 0.4% per year.

A leveraged CETF like the ProShares Ultra Yen (YCL) can provide two times (2x) daily investment performance of the price of the yen versus the US dollar.

The ProShares UltraShort Yen (YCS) provides daily returns that correspond to two times the inverse (-2x) of the Japanese yen spot price against the greenback.

Here are some popular Yen ETF options:

The uncertain global outlook makes it hard to predict how USD/JPY could move in the coming weeks, but a short-term bounce in the yen against the dollar is expected soon.

As investors, we're often encouraged to follow the crowd, but a contrarian approach can be a powerful way to make money. From a contrarian perspective, the yen's oversold condition may present a compelling long-term investment case.

Ray Dalio, founder of Bridgewater Associates, has highlighted the potential for a global "paradigm shift" where the U.S. dollar loses its reserve currency status. This scenario could lead to a significant appreciation of the yen as a safe-haven alternative.

The yen is attractive as part of a diversified portfolio, according to Dalio.

Warren Buffett has made significant investments in Japan, demonstrating his keen eye for value and strategic currency plays. He invested $6 billion in five Japanese trading houses in 2020.

Buffett's strategy involved issuing yen-denominated bonds to fund these purchases, capitalizing on Japan's ultra-low interest rates. This approach showcased how to leverage undervalued assets and favourable currency dynamics.

By the end of 2023, Berkshire had made unrealized gains of over $8 billion on these investments. Buffett's fascination with Japanese stocks continues, and in 2024, Berkshire priced 263.3 billion Japanese yen of bonds worth $1.7 billion.

Charlie Munger, Buffett's long-time partner, described this opportunity as "straightforward money" and compared it to a "gift from God" due to the minimal risk and attractive returns. This highlights the importance of being on the right side of a trade.

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The yen has been trading at multi-year lows against the U.S. dollar, with the USD/JPY exchange rate reaching 134 in 2023, its highest level since 2002. The yen's weakness is attributed to the Bank of Japan's ultra-loose monetary policy diverging from the Federal Reserve's tightening cycle.

Lyn Alden, a renowned macro strategist, notes that the yen is "the most undervalued currency in the world" based on purchasing power parity. This undervaluation presents an opportunity for investors to capitalize on the yen's potential rebound.

Shares of the Fund are bought and sold at current market prices, which can be higher or lower than the net asset value (NAV).

The frequency distribution of discounts and premiums is an important metric to consider. In the period ending 09/30/2024, there were 21 instances where the bid/ask midpoint was above NAV, accounting for 0.00-0.25% of the total days.

The majority of days, 188, had a bid/ask midpoint above NAV, with 75 instances falling within the 0.00-0.25% range. This suggests that the Fund's shares were generally priced at or slightly above their NAV during this period.

In contrast, there were 77 instances where the bid/ask midpoint was below NAV, with 32 of those instances falling within the 0.00-0.25% range. This indicates that there were also times when the Fund's shares were priced lower than their NAV.

Here is a breakdown of the frequency distribution of discounts and premiums:

The yen has been trading at multi-year lows against the U.S. dollar, with the USD/JPY exchange rate reaching 134 in 2023, its highest level since 2002.

The Bank of Japan's ultra-loose monetary policy is a key factor in the yen's weakness, as it diverges from the Federal Reserve's tightening cycle.

This divergence has led some experts to see an opportunity in the yen's undervaluation, with Lyn Alden, a renowned macro strategist, noting that the yen is "the most undervalued currency in the world" based on purchasing power parity.

The yen's low value has made it an attractive option for investors, but it's essential to consider the potential risks and challenges associated with investing in the yen.