Japan has just undergone one of the worst natural disasters in recent history, yet the price of their currency is skyrocketing. Homes and communities are in complete disrepair, but national currency trading is reporting that the yen is exchanging for higher sums in comparison to previous weeks.
This must mean that the Japanese are inherently becoming wealthier as a result of this catastrophe, right? Wrong, it illustrates the effects of fear and speculation. While many individuals see these damages as devastating to the Japanese and world economy, there is a silver lining: an excellent period to short the value of the yen and earn wealth beyond your imagination.
This must mean that the Japanese are inherently becoming wealthier as a result of this catastrophe, right? Wrong, it illustrates the effects of fear and speculation. While many individuals see these damages as devastating to the Japanese and world economy, there is a silver lining: an excellent period to short the value of the yen and earn wealth beyond your imagination.
As a result of the recent 8.9 magnitude earthquake and tsunami that struck Japan, the country is looking at damages approximating 200 billion dollars in rebuilding costs, excluding any insurance claims for benefits. Because the Japanese government is facing such massive expenditures, they are forced to sell off reserves of foreign currencies in exchange for yen to pay for reconstruction expenses. Those in possession of yen will ask for greater amounts of foreign currency per unit, which has since acted as the culprit for driving up the value of the yen. When there is a limited supply, greater demand always causes for prices to increase.
Unfortunately, this appreciation of the yen is not stable. The growth in the asking price for yen is artificial because if the price of yen rises indefinitely, Japan faces extreme inflation and the inability to repurchase their own currency. Without any yen they cannot pay Japanese workers, which means they either resort to printing new money or converting to a new currency, both of which signify terrible economic stability and imminent collapse. The collapse of one economy is devastating to global markets overall, and thus it is likely that a international governing body such as the G7 financial advisory group will make agreements in the coming days to limit the growth of the yen. This is not the only step they will take either. To ensure that the Japanese economy grows quickly from the ravages of this “perfect storm,” they will likely make moves to depreciate and stabilize the value of the yen so that the Japanese government can acquire as much domestic currency as possible.
The investment opportunities in Japan act as a significant upside to the current tragedies taking place. With the proper investing technique, you could become tremendously wealthy off of the quick appreciation of yen prices and a strong likelihood for global intervention to qualm this accelerated growth. This technique is known as shorting. When someone “shorts” an investment such as currency, they borrow and sell a certain amount of currency at its current trading price under the assumption that they will return the amount borrowed after a period of time. If I had the proper amount of money to invest, I would short as much yen as possible at its high price knowing that once the currency depreciates, I can purchase and return the amount borrowed and retain substantial profits. The more money that you have to invest, they greater you have to gain.
While Japan is undoubtedly suffering one of the worst possible crises, the greatest times for earning profitable investments are when others face negative situations. While this may seem insensitive to their plight, the world continues to revolve regardless of the situations of others. If you do not take advantage of the situation, then some else will. Would you prefer to “get rich” at the expense of others and possibly your own reputation? What will others think? Is it worthwhile?
I say yes.
