Investors spooked by the yen carry-trade blowup have pulled cash from a Japan-focused stock ETF that strips out moves in the country’s currency.
The WisdomTree Japan Hedged Equity Fund (ticker DXJ) saw an outflow of more than $400 million last week, the most since 2018, data compiled by Bloomberg show. At the same time, short interest as a percentage of shares outstanding on the ETF rose to the highest since May, according to data from IHS Markit Ltd.
The fund, which invests in Japanese stocks while hedging against weakness in the yen, had been rallying all year, benefitting from rock-bottom interest rates in the country. But all of that was upended in recent days when the Bank of Japan shocked markets with an unexpected rate hike, which led to an appreciation in the yen versus most major currencies and a plunge in Japanese equities. That proved painful for investors who had borrowed money in the Japanese currency and used it to fund purchases of higher-yielding assets elsewhere, something known as the carry trade.