Japanese Yen ETFs See More Volatile Moves

Japanese yen currency-related exchange traded funds have experienced some volatile swings as large investors dip back into this segment of the foreign exchange market.

The CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which tracks the yen currency moves against the U.S. dollar, fell 0.3% Friday but was still up 3.2% over the past month.

Meanwhile, the yen currency was trading around ¥133.48 against the U.S. dollar.

The yen currency is trying to rebound off a two-decade low against the U.S. dollar after the Federal Reserve embarked on an aggressive interest rate monetary policy to combat four-decade high inflationary pressures, which helped strengthen the USD outlook, whereas the Japanese yen continued to flounder with the Bank of Japan maintaining its ultra-low rate monetary policy even in the face of rising inflation.

However, the recent rebound may be attributed to increased institutional investor interest after the multi-decade lows helped attract some bargain hunters betting on a quick rebound. Salespeople on Wall Street trading desks argued that the latest moves could be from hedge funds cashing out on bets if the yen depreciated to a certain level, the Wall Street Journal reported.

“The yen has been volatile in recent trading sessions,” Kamakshya Trivedi, co-head of global foreign exchange, interest rates, and emerging-markets strategy research at Goldman Sachs, told the WSJ.

Market observers attributed the latest pullback to lessening Fed rate hike bets after the lower inflation data.

Nevertheless, the yen could continue to come under pressure as the BOJ has shown an unwillingness to shift its easy monetary policy. Bank of Japan Governor Haruhiko Kuroda recently stated that it would be unreasonable to reverse its loose monetary policy stance to support the currency.

Speculators are also taking on a bigger role in the yen currency moves.

“Things have changed in terms of how the foreign exchange market operates,” James Malcolm, head of foreign-exchange strategy at UBS, told the WSJ. “Japanese banks that used to be big players are now modest players, and there is much more high-frequency trading activity.”

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