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What is a 'Yen ETF'

A yen ETF is a type of exchange-traded fund (ETF) that invests primarily in several types of yen-backed assets. Currency ETFs, such as yen ETFs, track the way one currency performs in the foreign exchange market against a basket of currencies or a single currency such as the U.S. dollar.

The portfolios of yen ETFs include instruments such as currency, debt securities, money market funds and futures contracts, all primarily held in yen. The funds generate income for investors through the performance of the yen against other currencies as well as through interest generated by some securities in the portfolio. Some Yen ETFs match the current income earned on the yen assets with a dividend yield. Others use that income to pay the expenses of managing the ETF.

BREAKING DOWN 'Yen ETF'

Yen ETFs trade on a stock exchange. Like stocks, their prices fluctuate throughout the day as traders buy and sell them. They do not have a Net Asset Value (NAV) calculated at the end of each day.

Before the creation of ETFs, forex trading was generally the domain of experienced investors with knowledge of the market. ETFs made trading in the forex market more accessible to the average investor.

Yen ETFs appeal to investors in part because the yen remains a safe haven currency, meaning investors believe in the economic and political stability of Japan. By holding investment in foreign currencies, investors protect themselves in case their own currency declines in value. Still, some investors consider currency ETFs risky, since macroeconomic events affect currency values around the world, even in stable nations such as Japan.

Unpredictable natural disasters also affect currency values, such as the earthquake that resulted in the Fukushima disaster in 2011, which caused a surge in the value of the yen, followed by a recession in Japan. 

The yen is the fourth most widely traded currency in the world, and the most widely traded currency in Asia. Japan's historically low interest rates make it a sought-after currency for borrowing, but many borrowers use those funds to invest in debt and foreign securities.

Popular Yen ETFs

Investors looking to add yen ETFs to their portfolios have a number of options. The largest yen ETF is CurrencyShares Japanese Yen Trust (FXY), which manages $165.68 M in assets. Other yen ETFs include The ProShares Ultra Yen ETF (YCL),  ProShares UltraShort Yen ETF (YCS) and VelocityShares Daily 4x Long USD vs JPY ETN (DJPY).

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