Kavan Choksi Highlights Important Aspects Linked to Investing in or Buying Japanese Yen

Posted On January 12, 2023January 12, 2023

The economy of Japan is the third-largest in the world, and it had a nominal GDP of around $5.065 trillion in 2019. Japan enjoys the status of being the world’s largest creditor, which has provided its currency, the Japanese yen, a reputation of being a safe haven in the marketplace. A leading finance and business expert, Kavan Choksi further mentions that the Japanese yen is the third most traded currency in the foreign exchange market.

Kavan Choksi offers insights into investing in or buying Japanese yen

The Japanese yen has been a popular carry trade in the past, owing to the low interest rates that made it quite affordable to borrow. Even though the currency did lose a bit of this clout in 2015 and 2016, it still plays an important role for a number of international investors. Traders often use the currency for hedging purposes and capital gains opportunities.

Broadly speaking, the Japanese yen has been historically popular among international investors as a safe haven, currency hedge, and carry trade. Since the early 2000s, many investors have borrowed this currency owing to the low interest rates maintained by the Bank of Japan. Funds from these borrowing were subsequently lent out to other currencies, including the US dollar, at higher interest rates. Certain estimates pegged the Japanese yen carry trade at around $1 trillion in size by 2007. Between 2008 and 2012, these activities were important to driving up the valuation of yen versus other currencies, and hampered its export sector to a good extent. Certain quantitative easing and other measures were executed to reduce the Japanese yen’s valuation around 2013. Through all of these periods, the Japanese yen was also used as a currency hedge, providing the status of Japan as a key investment destination. International investors based in the United States could offset currency effects, losses or gains, in the volatile Japanese yen by opting to buy long or short Japanese yen funds or purchasing directly in the spot foreign exchange market.

According to Kavan Choksi, exchange-traded funds (ETFs) would be the simplest tool for international investors to gain exposure to the Japanese yen. Leveraging a range of derivatives like currency swaps, ETFs tend to attempt to mimic the price of the Japanese Yen versus either the United States dollar or even a basket of international currencies. Certain funds also provide leveraged or short-selling options that allow investors to capitalize on the movement of the Japanese yen in a variety of ways.

The spot foreign exchange or forex market provides another option to traders planning to buy or sell Japanese yen. By making use of one currency to buy another currency in a highly leveraged situation, traders may realize profits in case the currency purchased increases in value relative to the currency used to make the purchase. Japanese yen is one of the most frequently traded against the US dollar. Its currency pair is known as USD/JPY. Such trades are generally placed in specialized forex broker accounts that might differ from existing stock brokerage accounts.