Yen falling like a stone

[IloveJapan]

Guys, last Friday the yen acted like the world was coming to an end, and I suspect it could weaken further given the BOJ said nothing to support the yen following its meeting. It’s certainly the weakest level by far since I came to Japan

So I’d like to ask, does anyone feel they have words of wisdom on how to protect their assets against a falling yen?

You can mention any assets or strategies you like.

And how would a prolonged weakness in the yen affect your life plans?

[beanhead]

It certainly screws up plans to travel overseas.

[Deep Blue]

Guys, last Friday the yen acted like the world was coming to an end, and I suspect it could weaken further given the BOJ said nothing to support the yen following its meeting. It’s certainly the weakest level by far since I came to Japan

So I’d like to ask, does anyone feel they have words of wisdom on how to protect their assets against a falling yen?

You can mention any assets or strategies you like.

And how would a prolonged weakness in the yen affect your life plans?

Don't put all your eggs in one basket. First and foremost, buy a global equity index fund. Secondly, look into international fixed income options. Thirdly consider real, income generating assets like property.

Mix it up as far as you can - diversifaction is the cloest thing investors get to a free lunch. Uncorrelated income streams for the win....

[Tkydon]

It depends if your Base Currency is Dollars or Yen. Do you have Dollars or Yen? Do you want Dollars in the end or Yen?

If you have Dollars, and you want Dollars in the end, then do nothing with your dollars, and maybe buy more dollars, Yen Cost Averaging the Yen Price of your Dollars... If you have Dollar Income, then why do you care about the Exchange rate?

If you have Dollars, and you want Yen in the end, then do you want to let it ride to see if the Yen weakens further and the value of your Dollars in Yen goes Up? Or, do you want to take your profits and run, and pay the taxes? If you have Dollar Income (US retirees), it will be affected by the Exchange rate. You have had a 50% pay raise over the last 3 years... You may have a pay raise or cut in the future... Who knows?

If you have Yen, and you want Dollars in the end, then you may want to Yen Cost Average, or you may want to hold Yen (cash or assets) in the hope that you can buy more Dollars with them in the future than you can buy today... Warren Buffett was buying Yen assets in the hope that he can buy more Dollars with that Yen in the future.

If you have Yen, and you want Yen in the end, then why do you care about the Exchange rate?

Four different scenarios with four different requirements and four different strategies required...

[Deep Blue]

If you have Yen, and you want Yen in the end, then why do you care about the Exchange rate?

I would have thought the answer to this would be obvious from the cost of living crisis many families are going through in Japan.

Short answer: commodities like oil, gas and half the food we eat is priced in other currencies.

[sutebayashi]

Guys, last Friday the yen acted like the world was coming to an end, and I suspect it could weaken further given the BOJ said nothing to support the yen following its meeting.

The Ministry of Finance is responsible for the currency, apparently (it’s all wacky to me, since the BOJ’s policies obviously affect the value of the yen too). And they could sell some dollars to buy yen but it wouldn’t change the fundamentals behind the yen weakness.

It doesn’t look good for the relative value of my yen income currently, or the potential inheritance tax bill I might face one day, but what can you do.

The dollar/yen rate will probably get a 5-10% bounce upon some catalyst at some point later this year. A lot of the selling is speculative in nature, and speculators need to buy the yen back to realize profits. So if you are feeling bummed about the currency rate and wanting to sell yen, I’d not rush to do so. Just be sure to sell when you see a better level and not be fooled into thinking that the long term trend has reversed

And how would a prolonged weakness in the yen affect your life plans?

Fortunately it won’t affect my plans much, but if the kids decide to head overseas as a result (or for other reasons) I might be content to go that way too.

That’s a long way off though. Japan has its good points too, and I think the patience of the populace will have limits to the degree of poor political management that it can bear. Hopefully things turn for the better.

[sutebayashi]

Heh, I see 160.40 was pierced while I was typing that

[Tkydon]

If you have Yen, and you want Yen in the end, then why do you care about the Exchange rate?

I would have thought the answer to this would be obvious from the cost of living crisis many families are going through in Japan.

Short answer: commodities like oil, gas and half the food we eat is priced in other currencies.

... From a Hedge perspective...

If you invest in Yen Assets, wanting Yen in the End, your investments should out-pace inflation, or at least keep pace with inflation, and you don't have to worry about hedging...

The importers have bills to pay in Dollars and the Base Currency is Yen. Absolutely, the importers would want to hedge their risk. That is what hedging is all about...
The grower has bills to pay, in the future, and would rather sell his crop at today's futures price, than gamble on a better price at harvest time, with the equal possibility of a worse price and financial ruin...
One airline hedges Fuel costs and another flies naked... One day the hedger looks like a fool for taking out the insurance (that is what it is) that he didn't need, and then another day, he looks like a genius and the non-hedger looks like the fool! Airlines have gone bankrupt because of this...

Unfortunately, it is very difficult for a consumer to hedge the price of commodities like oil, gas and half the food we eat... At the end of the day, the consumer pays in Yen. (S)He would have had to buy the foreign currency when the Yen was strong... Not when the Yen is weak.

You can go to the bank, and they will price a Future, which is basically the same as them lending you the money today, and keeping it on time deposit for you, charging interest for the loan, but paying interest for the time deposit (you pay the interest differential), until you need the money, when you pay the price agreed, regardless of the price on that day...

People have in the past borrowed money in Yen at very low interest rates to buy property overseas (and banks promoted the practice), and the strategy was great for a while, but without hedging, the value in Yen terms of those properties decreased rapidly as the Yen Strengthened, leading to Margin Calls on the loans to maintain the Loan to Value Ratio as the Yen Strengthened. Many people couldn't put up the extra money, and their income from those assets declined in Yen terms so they could not even afford the payments. The Strengthening Yen was not good for them. People lost a lot of money. (Similar things happened in other countries too, like Singapore...)
So the banks stopped promoting that idea of cross boarder lending and terminated those products, just as the Yen hit it's all time Strength, when it would have been the perfect time to use that strategy going in to Yen Weakness...
Don't do that now...

Funny how banks promote products at the wrong time for the customer... - "Buy foreign currencies now and put them on time deposit for a nice interest rate'... Great, until the Yen Strengthens and the value, even with all those interest payments, falls below your initial input... We heard about that all the time when the yen was weaker, never when the Yen was stronger, and now again that the Yen is weaker... ???

A sophisticated investor can use options, futures, swaps, and a whole load of derivative Insurance products to protect him/herself from the potential risk of the vicissitudes of the market... (S)He sacrifices some upside gain for significant downside protection.
Monish Pabrai's catch phrase - "Heads, (s)he wins, and Tails, (s)he doesn't lose much.."

An unsophisticated consumer had no access to such products, other than maybe buying a bit of foreign currency in a Gaika account, or an International Mutual Fund...

And as everyone knows, you have to buy insurance before you need it. If you try to buy it after you already need it, the premium will be too high, or you will be denied cover... (pre-existing conditions... house already burgled or burnt down... car already smashed up...)

[Deep Blue]

Strong yen is a good thing for most consumers in Japan. People don’t need to worry about it. A weak yen is a much more of an issue, as we’re seeing.

[Deep Blue]

Heh, I see 160.40 was pierced while I was typing that

Back to 155. Some forex traders just had a very bad day