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How to Profit from Japanese Warning to Currency Speculators


Despite news that the Japanese central bank might intervene to reverse a rising yen, the Japanese stock market fell more than 1% during Monday trading because of fears that the United Statesí economy could fall in to recession.

The Nikkei 225 index of Japanese stocks fell 91.11 points, or 1.04%, to 8,628.13 by the end of Monday trading in Japan.

However, news that Japanís central bank planned to take decisive action to stop the Japanese yen from climbing higher may have prevented a greater selloff of Japanese stocks.

Japanese Finance Minister Yoshihiko Noda warned on Monday that the Bank of Japan would take action in order to prevent speculators from pushing the Japanese yen any higher.

Investors have been moving cash into the Japanese yen and the Swiss franc because the two currencies are viewed as safe haven currencies.

The Swiss and the Japanese are both concerned that the two countriesí strong currencies will slow their economic growth because their exports are becoming increasingly expensive.

Authorities in both countries have been warning that they would take steps to make their currencies less attractive to speculators, with the Swiss going so far as to warn that they may lower interest rates to below 0%, effectively charging speculators a fee to hold positions in the Swiss franc.

Investors are waiting to hear what American Federal Reserve Chairman Ben Bernanke has to say in a speech scheduled for later this week.

If Bernanke hints at a further round of quantitative easing, it may push the yen higher as the American dollar becomes a less attractive currency.

The Japanese will also want to hear what Bernanke has to say about the state of the American economy because slow growth or a recession in the United States will have a direct negative impact on Japanís export dependent economy.

Investors who feel that the Bank of Japan will take measures that lead to a weakening yen may want to take a look at the ProShares UltraShort Yen (NYSE: YCS), the iShares MSCI Japan Index Fund (NYSE: EWJ) and the ProShares Ultra MSCI Japan (NYSE: EZJ) ETFs.

If the Bank of Japan is successful in its efforts, the yen will fall and Japanese stocks should climb higher because Japanís exports will be more price competitive than they currently are with the yen at its current levels.

However, if Federal Reserve Chairman Ben Bernanke signals another round of quantitative easing or warns that the American economy is likely to continue to grow at a sluggish rate, the ProShares UltraShort MSCI Japan (NYSE: EWV) and the CurrencyShares Japanese Yen Trust (NYSE: FXY) ETFs could see their share prices climb higher.

If Americaís central bank starts printing more money, the yen may climb higher despite the efforts of Japanís central bank, while a slowdown in the American economy could send Japanese stocks even lower.


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