Dow Jones Indexes, a leading global index provider, and FXCM, a global online provider of foreign exchange trading, have announced the launch of the Dow Jones FXCM Yen Index.
The Dow Jones FXCM Yen Index measures changes in the value of the Japanese yen against a basket of four of the most-transacted currencies against the yen.
The new index measures changes in the value of the Japanese yen against a basket of four of the most-transacted currencies against the yen: the US dollar, the euro, the Australian dollar and the New Zealand dollar.
The index is the second to be offered collaboratively by Dow Jones Indexes and FXCM. In May 2011, the two firms launched the Dow Jones FXCM Dollar Index.
Both the Dow Jones FXCM Dollar Index and the new Dow Jones FXCM Yen Index follow a methodology that utilises FX quantities as the basis of its calculation, rather than FX spot rates, to enhance transparency.
With the goal of mimicking real-world FX portfolio construction, this approach also facilitates usage of the indexes as the basis for a wide range of instruments such as ETFs, mutual funds, forwards, futures, swaps, options, and structured products.
“We’re pleased to build upon the success of the Dow Jones FXCM Dollar Index by offering investors a comparable index for the yen,” said Michael A. Petronella, President,Dow Jones Indexes. “The Japanese foreign exchange market is the biggest in the world, and there is tremendous local and international investor interest in the yen. This index offers investors a unique tool for following the currency’s relative value.”
The index is constructed by initially equally weighting the following four currency pairs: USD/JPY, EUR/JPY, AUD/JPY and NZD/JPY. The index is reset to equal weighting only at rebalancings that occur in the event that the value of any single currency position declines by 90%, or in the case of qualified structural changes in the marketplace.
The four currency pairs were selected for the index primarily based on their liquidity and on real capital flows between the represented economies. Geographic diversification was another factor considered in selecting the currencies.
For investors looking to invest in the yen currency via ETPs, choice is somewhat limited. Moreover, none of the available products tracks a basket of currencies, such as that reflected by the Dow Jones FXCM Yen Index. That said, the three ETF Securities products we’ve highlighted below could be blended together in either a GDP-, trade- or volume-weighted basis to create a degree of diversification, in effect creating a basket of three of the larger G10 currencies.
ETFS Long JPY Short GBP ETC (GBJP)
London listed
ETFS Long JPY Short USD ETC (LJPY)
London listed
ETFS Long JPY Short EUR ETC (SJPS)
Deutsche Börse (Xetra) listed
These ETCs track the MSFX Long Japanese Yen/GBP Index (TR), MSFX Long Japanese Yen/USD Index (TR) and MSFX Long Japanese Yen/EUR Index (TR) respectively. These are total return indices calculated by Morgan Stanley to reflect the performance of a fully collateralised position in currency forward contracts which are rolled on a daily basis. The index provides long exposure to (i) movements in exchange rates between the local currency (JPY) and GBP/USD/EUR respectively and (ii) local interest rates – to the extent either are incorporated in forward contract prices.
Other yen-based exchange traded products include the NYSE-listed CurrencyShares Japanese Yen Trust (FXY) and WisdomTree Dreyfus Japanese Yen Fund (JVF).
Investors may wish to invest in these products in order to take advantage of short-term tactical or long-term strategic opportunities. For example, investors may believe that the pound, the dollar or the euro is weakening relative to the Japanese yen. Equally, the products can be used for hedging purposes.