Alroy Commentary - What are the impacts of weakened Japanese Yen to your investment policies
Thanks to Japanese New Prime Minister, Shinzo Abe, Japanese Yen depreciated by more than 9 percent against US Dollar since Mid-November and traded at around 88 at the beginning of January. Mr. Abe is widely expected to call for more aggressive easing policy by Bank of Japan in order to push down the Yen. Japanese who invested overseas may interest to know the impacts of weakened Japanese Yen to their investments.
For Japanese who invested overseas, they are likely to convert Japanese Yen to U.S. Dollar for investments at the beginning as many overseas investment products are based on U.S. Dollar. This action is equal to sell Japanese Yen and buy U.S. Dollar simultaneously. If Japanese Yen depreciates against U.S. Dollar during the investment period, Japanese investors can earn extra returns from the appreciation of U.S. Dollar.
For example, a Japanese investor converted JPY 100,000 to U.S. Dollar at the rate 80, he can get USD 1,250 in return for his initial investment. Later, the Japanese Yen dropped to 88 against U.S. Dollar. Even his investment does not generate any return, he can still get JPY 110,000 back if he decides to convert all U.S. Dollar into Japanese Yen. He can earn 10 percent return because of the appreciation of U.S. Dollar.
As Japanese Yen broke above 88 levels against U.S. Dollar since 2010 July, Japanese investors who converted their Yen to U.S. Dollar for investment, or contributed to their investments regularly in these periods, after 2010 July can earn extra returns for their investments. Gains from exchange rate are unlikely to reflect in their investment reports soon, as the base currency of reports are also U.S. Dollar.
Nevertheless, for Japanese investors who contributed fixed amount of U.S. Dollar for their investments, they will find extra money is needed for their investments as U.S. Dollar is more expensive now. However, if the investors believe Japanese Yen is still over-valued and will depreciate further against U.S. Dollar in the future, they still can find a happy reason to continue their investments.
Read More: Alroy Commentary - What are the factors that move Exchange Rates?
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