Thoughts On The Yen

Recently I've been reading up on the Yen and the Yen carry trade. This is where you borrow money from the Bank of Japan at the incredibly low rate of .25% and invest that money in bonds of the US (4.5%) or New Zealand (7%). After time passes and your bond matures, you end up with +4.25% gain in the case of the US and +6.75% in the case of New Zealand. Not bad for what amounts to "a sure thing". However, let's say the Japanese currency's price increases by 5%. This means you are going to have to pay back 5% more than you did when you borrowed the money. This means when converting from NZD and USD you're gains are 2% and -.25% (!) respectively. It's a large gamble, but the Bank of Japan has stood steadfast in keep its rates very low for quite a while. Eventually, cycles will take over and the BoJ will have to raise rates. When they do this the currency valuation will begin to rise due to increasingly good returns of government issued bonds. Japanese companies will benefit to a certain degree of their money being worth more. I think right now is a good time to invest in the Yen. It's at a 4 year low and currently at a technical resistance point. Below is a graph of the Yen valuation over the last 3 years with weekly candlesticks:



My knowledge of currency markets is still limited, so if you see a problem, please comment or email me!