Yen Slide Lifts Demand for Hedged Japan Funds to 7-Week High

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The yen’s slump to a 12-year low is reinvigorating demand for investment funds that protect against moves in the currency.

Investors directed the most money in seven weeks into the three largest U.S. exchange-traded funds that hedge against yen fluctuations, data compiled by Bloomberg show. The WisdomTree Japan Hedged Equity Fund, Deutsche X-trackers MSCI Japan Hedged Equity ETF and iShares Currency Hedged MSCI Japan ETF took in $352 million in the period through May 29, the most since the week ending April 10.

Traders are renewing bets that the Federal Reserve will raise rates around year-end, while policy makers in Japan press on with unprecedented stimulus, sending the dollar to its strongest since December 2002 versus the Japanese currency.

“You are seeing people getting into these funds again,” Eric Lichtenstein, senior managing director in New York for Cantor Fitzgerald LP’s ETF business, said by phone Monday. “There was a little bit of movement, probably in April when the dollar started getting weaker relative to the yen and euro and we saw some people liquidate some of those trades, but I think that has stopped and people have started coming back in.”

Currency Volatility

Inflows slumped to the lowest in more than four months in the week ending May 1 as the yen traded within its narrowest range since July amid broad dollar weakness. The yen touched a low of 124.92 per dollar before trading little changed at 124.81 as of 9:44 a.m. in Tokyo Tuesday from the close in New York.

WisdomTree Investment Inc.’s fund, the largest hedged Japan product in the U.S., saw its biggest inflow in seven weeks in the period through May 29. Deutsche Bank AG’s fund, the second biggest, capped its best month for inflows, the data show.

“We’ve seen a pretty strong move in dollar-yen,” Dodd Kittsley, head of ETF strategy and national accounts in New York at Deutsche Asset and Wealth Management, which oversees about $1.25 trillion, said by phone Monday. “That has caused investors to take a step back and dig a little deeper in terms of what they own in their international investments.”

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