INVESTMENT TOOLS - JAPANESE YEN

JAPANESE YEN
What Is This Tool?
As Japan’s export business has soared, the yen has become one of the world’s most important currencies. Its relationship to the U.S. dollar
is a key to the globe marketplace and is seen as a barometer of Japan’s economic
strength vs. that of the United States.
How Is It Computed?
It is typically quoted in newspapers and financial reports on television and radio in terms of its relationship to the U.S. dollar. If the yen is at 135, that means that each U.S. dollar buys 135 yen. To figure out what 1 yen equals in U.S. currency, investors use this formula.
1 yen = $1U.S./Yen-to-dollar rate
Example
If $1 buys 135 yen, then 1 yen is equal to $1 divided by 135 or $.00741.
Where Is It Found? Currency rates are listed daily in most major metropolitan
newspapers as well as national publications like The New York Times, USA Today,
and The Wall Street Journal, and on computer services such as America Online.
How Is It Used for Investment Decisions?
For American investors buying Japanese securities, the yen’s movement is a key part of the profit potential in the investment. If the yen rises after an investment in Japanese securities is made, the value of those stocks or bonds to a U.S. investor will get a boost from the currency. That is because when the investment is sold, the stronger yen will generate more dollars when the proceeds are converted to U.S. currency. Conversely, a weak yen will be a negative to a Japanese investment for a U.S. investor.
In some cases, the movement of the yen also can also be viewed as an indicator
of Japanese economic health. A strong yen can signal a buoyant economy, a possible
indication to buy Japanese stocks. The yen’s strength, however, should be verified not only against the U.S. dollar but against other major currencies.
A Word of Caution: The yen’s strength vs. the dollar can be distorted by prevailinginterest rates in each country. For example, a movement by Japan’s central bank to stimulate the economy by cutting Japanese interest rates (two potential boosts for stock prices) could also cut the yen’s price vs. the dollar if U.S. rates are stagnant or rising. This scenario of a falling yen might give an incorrect reading on the potential for buying Japanese securities.
Widely quoted currency rates are typically for transactions of $1 million or more.
Consumers looking to use such figures to determine currency rates for foreign travel
should expect to get somewhat less favorable exchange rates.