Invest in and buy Japanese Yen

Japan's economy is the third-largest in the world, with a nominal gross domestic product of about $5.065 trillion in 2019. The country's status as the world's largest creditor, rather than its economic prowess, has given its currency—the Japanese yen—a reputation in the marketplace as a safe haven. As a result, the Japanese yen has become the third most traded currency in the foreign exchange market. During the eurozone's sovereign debt crisis, the Japanese yen appreciated significantly in value as one of the few safe-haven currencies, particularly after the Swiss franc was pegged to the euro's valuation to prevent further appreciation.

The Japanese yen has also been a popular carry trade in the past, due to the low interest rates that made it cheap to borrow. Although the currency lost some of this clout in 2015 and 2016, it still plays a vital role for many international investors, as traders use the currency for capital gains opportunities and hedging purposes

The Japanese yen has been historically popular among international investors as a safe haven, carry trade, and currency hedge. Since the early 2000s, investors have borrowed Japanese yen given the Bank of Japan's low interest rates.

The funds from these borrowings were then lent out in other currencies, like the U.S. dollar, at a higher interest rate. By 2007, some estimates pegged the Japanese yen carry trade at around $1 trillion in size, before unwinding. Between 2008 and 2012, these activities drove up the yen's valuation versus other currencies and hurt its export sector considerably. In 2013, Prime Minister Shinzo Abe was elected on the promise to reduce the Japanese yen's valuation through quantitative easing and other measures, which helped bring down the valuation.

Throughout all of these periods, the Japanese yen was also used as a currency hedge, given Japan's status as an investment destination. US-based international investors could offset the currency effects, gains or losses, in the volatile Japanese yen by purchasing long or short Japanese yen funds or buying directly in the spot foreign exchange market.

The easiest way for international investors to gain exposure to the Japanese yen is by using exchange-traded funds (ETFs). Employing a variety of derivatives like currency swaps, these funds attempt to mimic the price of the Japanese yen versus either the U.S. dollar or a basket of international currencies.

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