ETFs to play Japan at 4-Year High

The Nikkei in Tokyo surged by 3.8% last night and closed at a fresh 4-year high as the news of BOJ Governor Shirakawa leaving early sent the Yen lower and stocks higher. The thought-process is that more "easing" from the BOJ is bad for the Yen and good for the Japanese stock market. So far that thinking has paid off for investors.

Japan ETFs

The Rydex CurrencyShares Japanese Yen ETF ($FXY) is down 17% since mid-September 2012 and this morning will break to the lowest level since 2009. We once owned this for clients as a "hedge" and it did really well and we made good money. Thankfully we sold well before the recent slide.

The iShares Japan ETF ($EWJ) is up 9% in the last 6 months, but has yet to break out to a new 52-week high. This has to do with the fall of the Japanese Yen and currency conversion within the ETF.

The WisdomTree Japan Hedged Equity ETF ($DXJ) is up 29% in the last 6 months because the goal of the ETF is to provide exposure to the Japanese stock market while eliminating currency fluctuations between the Japanese Yen and the US Dollar. A weak Yen has been helpful to $DXJ and hurts $EWJ.

The iShares Japan Small Cap ETF ($SCJ) is only up 6% in the last 6 months as the small caps have lagged and once again the currency fluctuations (weak Yen) have hurt the overall performance.

Below is a 6 month chart of $DXJ versus $EWJ. The outperformance by $DXJ is very clear.