10-K: Invesco CurrencyShares Japanese Yen Trust Reports Annual Results for Fiscal Year 2023

The Invesco CurrencyShares Japanese Yen Trust's annual report for 2023 details the trust's performance, financial condition, and operational activities, highlighting the impact of currency fluctuations and interest rate changes.

Summary

• The Invesco CurrencyShares Japanese Yen Trust is a grantor trust that aims to reflect the price of the Japanese Yen in USD, less expenses.
• The trust holds Japanese Yen and issues shares in blocks of 50,000, known as Baskets, in exchange for deposits of Japanese Yen.
• The trust's primary expense is the Sponsor's fee, which is 0.40% annually of the Japanese Yen held by the trust.
• For the year ended December 31, 2023, the trust incurred $956,975 in Sponsor's fees.
• The trust's net comprehensive loss for 2023 was $1,442,296, impacted by market volatility and a decline in the Japanese Yen.
• The interest rate paid by the Depository was a nominal annual rate of -0.20% as of December 31, 2023.
• The trust does not actively manage its holdings and is subject to risks associated with fluctuations in the Japanese Yen/USD exchange rate.
• The trust will terminate on February 1, 2047, unless a termination event occurs earlier.

Sentiment

Score: 4

Explanation: The document highlights a net loss and negative interest rates, indicating a challenging year for the trust. While the structure is transparent and passive, the negative performance and risks associated with currency fluctuations temper the overall sentiment.

Positives

• The trust provides a simple and cost-effective way for investors to gain exposure to the Japanese Yen.
• The trust is transparent, with its Net Asset Value (NAV) published daily on its website.
• The trust is a passive investment vehicle, which reduces management risk.
• The trust's structure as a grantor trust means no federal income taxes are paid at the trust level.

Negatives

• The trust's value is directly tied to the Japanese Yen, making it vulnerable to currency fluctuations.
• The trust's expenses, primarily the Sponsor's fee, can reduce the amount of Japanese Yen represented by each share over time.
• The trust is not actively managed, so it cannot take advantage of market fluctuations.
• The trust's interest rate on deposits can be negative, further reducing the value of the shares.
• The trust does not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940.

Risks

• Fluctuations in the price of the Japanese Yen could materially and adversely affect the value of the Shares.
• The Japanese Yen/USD exchange rate can be volatile and difficult to predict.
• If interest earned by the Trust does not exceed the Trusts expenses, the Trustee will withdraw Japanese Yen from the Trust to pay these excess expenses, which will reduce the amount of Japanese Yen represented by each Share on an ongoing basis.
• The interest rate paid by the Depository may not be the best rate available and can be reduced to zero or below zero.
• The Shares may trade at a price which is at, above, or below the NAV per Share.
• Disruptions in the ability to create and redeem Baskets may adversely impact the price of the Shares.
• Substantial sales of Japanese Yen by the official sector could adversely affect an investment in the Shares.
• International armed conflicts may result in market volatility that could adversely affect the fund's performance.
• Pandemics and other public health emergencies could disrupt the global economy and adversely impact the Trust's performance.
• Changes to United States tariff and trade policies may increase the volatility of foreign exchange rates.
• The Deposit Accounts are not entitled to payment at any office of JPMorgan Chase Bank, N.A. located in the United States.
• Shareholders do not have the protections associated with ownership of a demand deposit account insured in the United States by the Federal Deposit Insurance Corporation or the protection provided for bank deposits under English law.
• Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940.
• If the Depository becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant.
• The License Agreement with The Bank of New York Mellon may be terminated by The Bank of New York Mellon in the event of a material breach.
• Shareholders may incur significant fees upon the termination of the Trust.
• The Depository owes no fiduciary duties to the Trust or the Shareholders, is not required to act in their best interest and could resign or be removed by the Sponsor, which would trigger early termination of the Trust.
• Redemption orders are subject to rejection by the Trustee under certain circumstances.
• The Depositary Trust Agreement may be amended to the detriment of Shareholders without their consent.
• Cyber attacks pose operational and information security risks.

Future Outlook

The report contains forward-looking statements regarding the potential impact of various factors on the trust's performance, including fluctuations in the price of the Japanese Yen. However, the Sponsor does not assume responsibility for the accuracy or completeness of these statements and will not revise or update them.

Management Comments

• Management of Invesco Specialized Products, LLC, as sponsor of the Invesco CurrencyShares Japanese Yen Trust, is responsible for establishing and maintaining adequate internal control over financial reporting.
• The Principal Executive Officer and Principal Financial and Accounting Officer concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2023.

Industry Context

This report reflects the performance of a currency-based exchange-traded fund (ETF), which is a common investment vehicle for investors seeking exposure to foreign exchange markets. The trust's performance is directly influenced by the Japanese Yen's value against the US dollar, making it susceptible to global economic and political events.

Comparison to Industry Standards

• The Invesco CurrencyShares Japanese Yen Trust (FXY) is comparable to other currency ETFs such as the WisdomTree Japanese Yen ETF (JYF) and the ProShares UltraShort Yen (YCS).
• FXY aims to track the spot price of the Japanese Yen, while other ETFs may use leverage or derivatives to achieve different investment objectives.
• The expense ratio of FXY is 0.40%, which is within the typical range for currency ETFs.
• Unlike some currency ETFs, FXY does not use derivatives, making it a more straightforward investment for those seeking direct exposure to the Japanese Yen.
• The performance of FXY is directly correlated to the JPY/USD exchange rate, similar to other non-leveraged JPY ETFs.

Management Changes

Corporate Governance

Related Party Transactions

• The Trust pays the Sponsor a fee that accrues daily at an annual nominal rate of 0.40% of the Japanese Yen in the Trust.

Stakeholder Impact

• Shareholders are exposed to the risks and rewards of the Japanese Yen's performance against the US dollar.
• Shareholders may experience a gradual decline in the amount of Japanese Yen represented by each share if expenses exceed interest earned.
• Authorized Participants are responsible for the creation and redemption of Baskets.
• The Sponsor is responsible for the management and administration of the Trust.
• The Depository holds the Japanese Yen deposits and may earn a spread or margin over the interest it pays to the Trust.

Next Steps

• The trust will continue to operate as a passive investment vehicle, tracking the price of the Japanese Yen.
• The Sponsor will continue to oversee the performance of the Trustee and the Trust's service providers.
• The Trust will continue to file quarterly and annual reports with the SEC.

Key Dates

Keywords

Japanese Yen, Currency Trust, Exchange Traded Fund, FXY, Invesco, CurrencyShares, Grantor Trust, Foreign Exchange, NYSE Arca