If your investments in stocks or real estate are going south or sideways, you might want to take a stab at investing in different currencies such as the Japanese yen. The yen reacts to Japanese interest and inflation rates, as well as the relative strength of other economies in the Asian/Pacific sphere, such as China. The foreign-exchange, futures, options, stock and bond markets all offer diverse methods of speculating in the yen.
In the foreign exchange, or forex, markets, investors can take positions in the Japanese currency relative to other widely traded monies such as the U.S. dollar and the euro. Forex contracts are highly leveraged, meaning you need only a small capital investment to trade the currency pairs. Long positions anticipate the yen will rise; short positions bet the other way. The forex markets remain open 24 hours a day throughout the work week, from the Monday opening in Asia until the Friday close in New York. To get a feel for how forex trading works, try a practice account with one of the larger online brokers, which do not charge any initial investment, trading commissions or account fees.
With a futures contract, an investor speculates on the rise or fall of the yen within a limited period of time. Each contract has an expiration date and a fixed strike price. Investors can also buy and sell options contracts on these futures. Yen futures are traded on the Chicago Mercantile Exchange. For access, you need to sign up with a broker who can accept and execute your trades. As in forex trading, the futures market is a leveraged play that carries a high degree of risk. You can lose your initial investment, and more, if your position goes against you. For this reason, a managed futures account lets you place your money with an experienced dealer who carries out the trades and limits your risk.
Yen investors also have exchange-traded funds (ETF) available, including Rydex Currency Shares Japanese Yen Trust (ticker symbol FXY), the yen fund that rises and falls with the Japanese currency. The ETF managers do the trading; ETF investors simply buy collateral shares on the open market that rise and fall with the overall performance of the fund, much like a stock mutual fund. Exchange-traded funds such as the iShares Japan Index (EWJ) are also available that invest directly in the Japanese stock market. A rising yen tends to make these shares more valuable.
Stocks and Bonds
You can profit indirectly from a yen rise by buying shares in Japanese companies such as Toyota, Mitsubishi, Matsushita, Nissan and Canon, all of which are available for trading through a broker on the New York Stock Exchange. Yen appreciation against the dollar tends to boost Japanese share prices. Stock investors also benefit from any dividends paid by the company. Although they pay quite low rates of interest, Japanese government bonds are an alternate investment. Their price will reflect more general economic conditions in Japan such as trade deficits, GDP growth, interest rates and inflation.
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