Japanese Yen Money: Exchange Rate Value, Currency Dynamics And Investing
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Japanese Yen money is the official currency of Japan. It is one of the most widely traded currencies exceeded only by the US dollar, the Euro and the Pound sterling. Many countries keep a part of their foreign reserves in Japanese Yen. The Japanese government has intervened in the currency markets to ensure that the Yen does not rise too much and make Japanese exports uncompetitive on world markets. Japan also carries a large amount of US foreign reserves due to a favorable balance of trade with the US. The Yen/Usd cross rate is one of the most widely watched currency rates due to the unique role that it plays in global financial systems.
As a leading manufacturing nation, Japan has accumulated a large current account surplus. The amount of trade that takes place in Japanese dollars has contributed to the demand for Yen money conversion. This, however, has been offset by interest rate differentials. The Japanese have maintained a very low interest rate level for many years. This has created the carry trade. Investors and speculators borrow in Japan units of money at a low interest rate and invest in higher yielding assets. The cost of carry is offset by the return on the investment that is sufficient to yield a profit. At the time of this writing, it is estimated that there are trillions of dollars tied to the carry trade.
During times of market turbulence the carry trade unwinds which causes the value of the Japanese Yen money to rise. Since the initial emergence of the sub prime crisis in the US in July 2007, the exchange rate of the Japanese currency, relative to the US dollar, has started to appreciate. This is because risk adverse trades are being unwound in response to increasing risk in the global markets. On days of market volatility, this becomes more evident. Investors and traders who find asset values decreasing unwind foreign holdings in countries such as the US and buy back the Japanese Yen. This causes an appreciation of the Japanese Yen money relative to the US dollar.
The recent rise in the Japanese money exchange rate is good news for Japanese travelers. The value of travel and goods and services in foreign countries becomes cheaper when purchasing power increases due to favorable Yen money conversion. The rise in the Yen has also captured the attention of traders/investors who are looking to profit from this appreciation. Apart from Forex and Currency Futures, speculators have some additional options for investing and trading Japanese Yen money. The Currencyshares Japanese Yen Trust ETF is a Yen ETF that can be purchased on a US exchange and provides exposure to movements in the price of Japanese Yen. A Japanese currency ETF can be used to go long and short for longer term or short term trends.
Everbank also have a range of deposit accounts which pay interest and have exposure to Japanese Yen money. The Pacific Advantage CD and Pan Asian CD are both FDIC insured and can be used for 3 or 6 month holding periods.
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