Is the Yen's Value at Rock Bottom? ... Quick Investors Bought This ETF

Won-Yen Exchange Rate Hits Lowest Level in 8 Years
Individual Investors Net Buy 23.5 Billion Won of ‘TIGER Ilbon En Seonmul’ ETF This Month
Policy Revision Expectations Valid... Unlikely to Occur in Short Term

As the won-yen exchange rate has fallen to its lowest level in eight years, prompting analyses that it has formed a 'true bottom,' money is pouring into exchange-traded funds (ETFs) investing in the yen. Analysts also suggest that the Bank of Japan (BOJ) may have no choice but to scale back some of its monetary easing policies this year, further fueling investors' bets.

According to the Korea Exchange, individual investors have net purchased 23.5 billion won worth of the 'TIGER Japan Yen Futures' ETF since the beginning of this month. It ranks as the sixth most purchased ETF this month. Since the start of the year, individuals have net bought 30.6 billion won of this ETF, with most of the funds flowing in this month. In the past week alone, 13.4 billion won has been invested.

TIGER Japan Yen Futures is the only yen ETF available for investment domestically. It is influenced by the movements of the yen futures index, and as analyses suggest that the yen has fallen as much as it can, investors expecting a rise in the yen's value have acted quickly.

According to the Seoul foreign exchange market, as of the morning of the 19th, the won-yen exchange rate fluctuated in the 800-won range per 100 yen before settling in the low 900-won range. At the beginning of this year, the won-yen rate was 965 won per 100 yen and surged to 1,000 won in April. Currently, it has dropped below 900 won per 100 yen, marking the lowest level since June 2015.

While major countries such as the United States and Europe maintain tight monetary policies, Japan continues its accommodative monetary policy, leading to a continued weakness of the yen. Recently, following a surprise interest rate hike by the Bank of Canada, the U.S. Federal Reserve (Fed) raised its dot plot at the June Federal Open Market Committee (FOMC) meeting, signaling the possibility of two more rate hikes this year. However, the Bank of Japan (BOJ) has clearly stated its intention to continue its easing policy. As a result, the yen's value remains weak against the dollar and euro. The dollar-yen exchange rate has surged by 10 yen from 130 yen in January to 141 yen per dollar, and the euro-yen rate has reached 154 yen per euro for the first time since 2008.

Yen Weakness Positively Impacts Japanese Stock Market

Investors are anticipating a swift policy change from the BOJ. As inflationary pressures gradually increase, breaking away from the long-standing deflation (price decline) that has weighed on the economy, the BOJ may soon shift toward tightening policies. The sharp decline in the yen also supports expectations for policy adjustments. Some expect that since the BOJ maintained its policy stance at the Monetary Policy Meeting on the 16th, it may revise its policy at the July meeting.

However, experts believe the BOJ will not change its policy as quickly as expected. This implies that the yen's weakness may persist for some time. The reason is the BOJ's lack of confidence in achieving its goal of 'sustainable inflation.' Although inflation in the service sector is expected to rise due to the reopening effect and wage increases through deposit negotiations, it is not considered sufficient to trigger policy changes. Recently, at the Monetary Policy Meeting, Governor Ueda remarked, "There is high uncertainty regarding next year's inflation and wage increases, and achieving sustainable inflation may take time," signaling caution against premature tightening.

There are also opinions that yen weakness alone cannot be a major basis for policy revision. Lee Jung-hoon, a researcher at Eugene Investment & Securities, stated, "As U.S. tightening is nearing its final phase, pressure for further yen depreciation will not increase," adding, "Yen weakness is positively affecting Japanese stocks, so urgent policy changes are unlikely." Park Yoon-jung, a researcher at NH Investment & Securities, emphasized, "Even during the sharper yen weakness in September and October 2022, the BOJ maintained its policy stance," and added, "If the July FOMC results in a rate hold, the burden of yen weakness may ease, making it insufficient grounds for tightening."

This content was produced with the assistance of AI translation services.