Three ways to profit from the yen

With the carry trade coming to an end, the tide is turning for the once-weak yen. What's more, the Japanese economy looks well-placed to ride out the credit crunch. Tim Bennett looks at how to profit from this strengthening currency

For several years now, hedge funds and Japanese housewives have made seemingly easy profits from the yen carry trade, where investors borrow the Japanese currency cheaply the official interest rate set by the Bank of Japan is only 0.5% to invest in assets in other, higher-yielding currencies, such as sterling (5.75%) or the New Zealand dollar (8%). The yen's weakness has been underpinned by a lack of confidence in an economy teetering on the brink of price deflation Japanese consumers seem to prefer saving to spending which has helped keep interest rates low. But times are changing: the recent credit crunch has hammered asset markets, forcing traders to unwind carry trades as they become more risk-averse. And the Japanese economy, despite recent wobbles, still looks better-placed to ride out a credit crunch than its Anglo-Saxon counterparts. Barclays Capital reckons the yen will end the year at 109 to the dollar, from about 115 now. So how can you profit from this?

Place a currency spreadbet

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.