japanese yen

Is the Japanese Yen Headed for a Long Decline?

Currency drawing small

The Japanese yen has already fallen by more than 12% against the U.S. dollar since Nov. 1, 2012 - and it could still have further to fall.

That's mainly because the Bank of Japan appears likely to go along with the wishes of the Liberal Democratic Party, led by newly elected Prime Minister Shinzo Abe, and step up its attempts to eliminate deflation by using "unlimited easing" and setting a 2% inflation target.

Most of the Japanese yen's weakness we have seen so far stems from aggressive jawboning by Prime Minister Abe and other LDP leaders. And outgoing Bank of Japan Governor Masaaki Shirakawa has appeared likely to go along with Prime Minister Abe's demands for closer cooperation between the government and the central bank.

The Bank of Japan's Monetary Policy Committee (the Japanese equivalent of the Fed's Federal Open Market Committee) is in the middle of a regularly scheduled two-day meeting. It is widely anticipated that the BOJ will agree to additional easing measures - most likely purchases of Japanese government bonds (JGBs) - and will formally adopt the government's 2% inflation target.

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Japanese Earthquake Impact: How to Play the Post-Disaster Currency Moves

According to Biriniyi Associates, investors threw more than $1 billion into Japanese exchange-traded funds (ETFs) last month - second only to U.S. energy funds and more than agriculture, large-caps and mid-cap stocks combined.

They couldn't have placed their bets at a worse time.

Amidst fears of multiple nuclear meltdowns, the benchmark Nikkei 225 Index plunged 10.55% yesterday (Tuesday) after a 6.2% decline on Monday - a two-day decline of 17% since Friday's devastating 9.0-level earthquake and tsunami. More than $650 billion in shareholder wealth has been vaporized.

As a veteran trader and longtime expert on Asia, it's a story that I've heard countless times: Japan was supposed to regain what it once had - a vibrant economy that helped lead the world in the years following World War II, and that finally achieved global dominance in the late 1980s.

Somehow, however, that never happened. But it didn't discourage the believers.

To understand how to protect yourself from the looming currency backlash, please read on...

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