Earlier today in a post “One consequence of change in Fed policy likely to be a weaker dollar” I noted that a number of Wall Street and big international banks have forecast a drop in the dollar as a result of the Fed’s decision to back off on raising interest rates in 2019.
Morgan Stanley, for example, says that the dollar has peaked and has forecast the yen climbing to 102 to the dollar and the euro to $1.31 by the end of 2019. Japan’s Nomura is projecting foreign selling of dollars.
Tomorrow I’m adding the Invesco CurrencyShares Japanese Yen ETF (FXY) to my Jubak Picks portfolio. (The ETF is already part of my Perfect 5 ETF Portfolio on my subscription sites JugglingWithKnives.com and JubakAM.com.)
This yen ETF has the advantage of potential profits if the dollar does indeed sink against the yen–and a hedge against a slowdown in the global economy. Since the yen, despite all the troubles in the Japanese economy and negative benchmark interest rates at the Bank of Japan, is seen as a safe haven in times of turmoil, the current tends to go up when other financial assets go down. That anti-correlation makes it a valuable tool for diversifying a portfolio in current macro conditions.
I’m not looking for a big gain from this position–5% would be fine considering the diversification value of this hedge. (The pick also has the effect of moving some cash to the sidelines.)
Today, February 5, the Invesco Currency Shares Japanese Yen ETF closed at $86.81. I’m setting a target price of $91.25 for this position.