The yen recently hit multi-decade lows against the U.S. dollar, providing support for a slew of export-driven Japan equities. Yen weakness is a catalyst for variety of Japan ETFs, including the WisdomTree Japan Opportunities Fund (OPPJ). OPPJ, which tracks the WisdomTree Japan Opportunities Index, is up more than 26%. That confirms that, although not a currency hedged ETF, it benefits from yen weakness. To its credit, OPPJ has ample leverage to Japan’s export story. As just one example, the ETF allocates 52.59% of its portfolio to industrial stocks, a group including plenty of exporters. These days, that’s an attractive trait.
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“With the yen having weakened recently to multi-decade lows against the dollar, some have cited the Japanese currency’s weakness as one source of support for the Nikkei Stock Average, which has rallied to new highs even amid the geoeconomic uncertainty sparked by the Iran conflict,” noted Amova Asset Management.
Indeed, the weak yen is helping Japan stocks grind higher at least to some degree. However, the extent of that assistance is debatable. That may actually be a positive for the $289.77 million OPPJ.
OPPJ: More Than a Slumping Yen ETF
Some OPPJ holdings could derive earnings boosts from the weak yen, but in relatively modest fashion. That indicates that the Nikkei’s recent rally is overshooting the bottom-line enhancements big Japan exporters are generating from the sliding currency.
“Estimated impacts from yen depreciation on operating profits range between 0.3% to 2.8% year-over-year, a stark contrast with the Nikkei’s outsized gains,” added Amova.
That said, advisors and investors should view OPPJ through a lens not tethered to yen fluctuation. Ample evidence suggests that artificial intelligence-fueled tech bullishness contributed to Japan stocks. OPPJ has some leverage to that trend, because tech is the ETF’s second-largest sector allocation at 14%.
OPPJ’s tech exposure is pertinent on the domestic front, as well. As deflation wanes in Japan, more companies look to spend on tech to boost productivity.
“This also requires coordination between fiscal and monetary authorities, whose credibility is not yet compromised, but is still in the process of being established. There are signs of sustainable, productivity-enhancing investment,” concluded Amova.
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