How To Invest In Yen?

[Starcrossed]

I have a few thouand to play with and have a hunch about the yen.

A hunch is all it is - I am relatively ignorant about the complexities of currencies.

However, the hunch comes from:

• 
  

the fact the yen/Japanese currency has been on it's uppers for years - you know, buy at the bottom and all that

• 
  

the clear weaknesses pending in the US, UK and also tensions in the Eurozone

• 
  

information I have been reading about the 'carry trade' and possibilities this could unwind

Against this is that fact that a rising oil price may negatively affect the Japanese economy.

I know that a few thousand £ is not much to go with, has anyone bought yen or would recommend a way to do it?

Thanks,

Starcrossed.

[BuyingBear]

I have a few thouand to play with and have a hunch about the yen.

A hunch is all it is - I am relatively ignorant about the complexities of currencies.

However, the hunch comes from:

the fact the yen/Japanese currency has been on it's uppers for years - you know, buy at the bottom and all that

the clear weaknesses pending in the US, UK and also tensions in the Eurozone

information I have been reading about the 'carry trade' and possibilities this could unwind

BoJ operate a dirty float, they intervene, you may get burnt.

[christhpc]

If you want to invest in yen, why don't you just stick your money into some form of Japanese index tracker? Then if sterling tanks against the yen then your investment will still hold it's value and be worth considerably more in GBP terms. Much less hassle than buggering about with Japanese bank accounts - which also have the negative of attracting interest rates so low they'd make your average UK high street bank blush.

[Doom Lord]

OK have been looking into this since the other post was made on the main forum.

Bassically check out this web site:

https://fxtrade.oanda.com/

This will allows you to hold curreny pairs eg gbp/jpy and give you interest on the open position. You can also leverage yourself up as well but that adds extra risk. It seems the the pound is overvalued somewhat so that will also add to the risk.

Seems like a risky play to me but it is very tempting . Wish I had know about this stuff a few years ago

[Doom Lord]

I will say that if the pound does crash and there is still the big difference between the base rates then it's GAME ON.

[Starcrossed]

Thanks Doom Lord.

I agree on a falling £ while we still have high IRs. Only one way to go then!

I may wait for the June MPC decision and see what effect a possible IR rise has on the exchange rate. And in the meantime keep researching.

Before I embark on this adventure I would have to get over my nervousness about risk as well, but I'm tempted.

[jonpo]

You need to be ready. The hedge funds move VERY fast the carry trade is HOT HOT HOT money I would use options at least then someone else is worrying about filling the orders and dynamic hedging.

[Charlie Don't Surf]

I have a yen account with Citibank. 0% interest but I can transfer a couple of hundred £ a month in online and if things start hotting up dump a load more in pretty fast.

If you want to invest in yen, why don't you just stick your money into some form of Japanese index tracker?

Would this work. I figured a stronger Yen is bad for Japanese stocks so didn't do it this way

[Doom Lord]

I have a yen account with Citibank. 0% interest but I can transfer a couple of hundred £ a month in online and if things start hotting up dump a load more in pretty fast.

Would this work. I figured a stronger Yen is bad for Japanese stocks so didn't do it this way

What you would be doing is called going "Long" on the Yen as you think that the Yen is undervalued compared to the pound and when the pound devalues you will make some profit by selling the Yen for sterling.

What we are talking about is the "Yen carry trade". In this situation I am holding a currency pair i.e GBP/YEN and leveraging myself up say 10:1 i.e for every pound I put in get £10 pounds worth of YEN.

This is called a "Position". While this position is open you get (GBP BASE interest rate - the Yen BASE interest rate) worth of interest on it. However as it's leveraged I have to have a margin to cover this position. With a 10:1 leverage I have to have 10% of the total open position margin. So If I have £10,000 levereaged up to £100,000 then I would also need a £10,000 margin in my account.

This means for a £20,000 investment I get (GBP BASE interest rate - the Yen BASE interest rate) worth of interest on £100,000 and GBP base rate on my £10,000 margin.

Great, but there is a catch, if sterling drops below my margin, my open positions are closed and I loose my £10,000 margin. At the moment the pound is strong against the Yen and could be in for a big drop so it's up to you to weigh up the risks.

It's a very interesting subject to read up about because the amount of money generated through the Yen carry trade is so big there isn't a precise figure for it and a lot of people think that if it unwound in an uncontrolled fashion then the whole financial system could collapse.

Edited June 5, 2007 by Doom Lord