Inside the Currency Market: Mechanics, Valuation, and Strategies

Trade Strategy

In the U.S. dollar/Japanese yen arrangement, the Japanese yen is a yield seeker while Japanese yen/U.S. dollar sees Japanese yen as a bond follower. This is a tricky arrangement for the Japanese. With U.S. dollar/Japanese yen, as the Nikkei rises, bond futures will fall, and bond yields will rise along with the U.S. dollar/Japanese yen. Japanese yen/U.S. dollar works opposite. As the Nikkei falls, bonds rise, yields fall, and the Japanese yen/U.S. dollar rises. The preferred arrangement for the Japanese is Japanese yen/U.S. dollar in Japanese trading, yet that means stock market falls hinder their companies as well as overall economic conditions. It's a precarious situation for the Japanese and made more precarious by a call rate ...