Investing Trading Forex Trading How to Invest In and Buy Japanese Yen By Justin Kuepper Justin Kuepper Twitter Justin Kuepper is a financial analyst, journalist, and private investor with over 15 years of experience in the domestic and international markets. learn about our editorial policies Updated on January 30, 2022 Reviewed by Michael J Boyle Reviewed by Michael J Boyle Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics. learn about our financial review board Fact checked by Vikki Velasquez Fact checked by Vikki Velasquez Vikki Velasquez is a freelance copyeditor and researcher with a degree in Gender Studies. Previously, she conducted in-depth research on social and economic issues such as housing, education, wealth inequality, and the historical legacy of Richmond VA as well as their intersectionality while working for a community leadership nonprofit. Vikki leverages her nonprofit experience to enhance the quality and accuracy of Dotdash's content. learn about our editorial policies Photo: Agustin Rafael C. Reyes Getty Images Japan's economy is the third-largest in the world, with a nominal gross domestic product of about $5.065 trillion in 2019. The country's status as the world's largest creditor, rather than its economic prowess, has given its currency—the Japanese yen—a reputation in the marketplace as a safe haven. As a result, the Japanese yen has become the third most traded currency in the foreign exchange market. During the eurozone's sovereign debt crisis, the Japanese yen appreciated significantly in value as one of the few safe-haven currencies, particularly after the Swiss franc was pegged to the euro's valuation to prevent further appreciation. The Japanese yen has also been a popular carry trade in the past, due to the low interest rates that made it cheap to borrow. Although the currency lost some of this clout in 2015 and 2016, it still plays a vital role for many international investors, as traders use the currency for capital gains opportunities and hedging purposes. Key Takeaways The Japanese yen is the third most traded currency in the foreign exchange market.The yen has been historically popular among international investors as a safe haven, carry trade, and currency hedge.The easiest way for international investors to gain exposure to the Japanese yen is by using exchange-traded funds (ETFs).You can also invest in the Japanese yen through the futures market, or by buying government bonds or stocks and bonds of Japanese-owned companies. Safe Havens, Carry Trades, and Hedges The Japanese yen has been historically popular among international investors as a safe haven, carry trade, and currency hedge. Since the early 2000s, investors have borrowed Japanese yen given the Bank of Japan's low interest rates. The funds from these borrowings were then lent out in other currencies, like the U.S. dollar, at a higher interest rate. By 2007, some estimates pegged the Japanese yen carry trade at around $1 trillion in size, before unwinding. Between 2008 and 2012, these activities drove up the yen's valuation versus other currencies and hurt its export sector considerably. In 2013, Prime Minister Shinzo Abe was elected on the promise to reduce the Japanese yen's valuation through quantitative easing and other measures, which helped bring down the valuation. Throughout all of these periods, the Japanese yen was also used as a currency hedge, given Japan's status as an investment destination. U.S.-based international investors could offset the currency effects, gains or losses, in the volatile Japanese yen by purchasing long or short Japanese yen funds or buying directly in the spot foreign exchange market. Investing in Japanese Yen With ETFs The easiest way for international investors to gain exposure to the Japanese yen is by using exchange-traded funds (ETFs). Employing a variety of derivatives like currency swaps, these funds attempt to mimic the price of the Japanese yen versus either the U.S. dollar or a basket of international currencies. Some funds also offer leveraged or short-selling options that enable investors to capitalize on the Japanese yen's movement in a variety of ways. The two most popular Japanese yen ETFs are: ProShares UltraShort Yen (YCS): YCS seeks daily investment results that correspond to two times the inverse (-2x) of the daily performance of the U.S. dollar price of yen, with a 0.95% expense ratio and approximately $24.45 million in total assets.Invesco CurrencyShares Japanese Yen Trust (FXY): FXY is designed to track the price of the Japanese yen by holding Japanese yen in deposit with the share price reflecting the price in U.S. dollars of the Japanese yen, with a 0.40% expense ratio and approximately $82.51 million in total assets. Forex Market The spot foreign exchange (forex) market offers another option for traders looking to buy or sell Japanese yen. By using one currency to buy another currency in a highly leveraged (e.g., 50:1 or more) situation, traders can realize a profit when the currency purchased increases in value relative to the currency used to make the purchase. The Japanese yen is one of the most commonly traded against the U.S. dollar in a currency pair known as USD/JPY. Before trading in these markets, international investors should be aware that the leverage involved often means greater risk. These trades are also typically placed in specialized forex broker accounts that may differ from existing stock brokerage accounts. The Futures Market You can speculate on the yen's activity by purchasing futures, which have a set expiration and fixed strike price, or you can take advantage of leverage and buy or sell options on yen futures contracts. Yen futures trade on the Chicago Mercantile Exchange (Merc) and involve a significant degree of leverage, which could wind up putting you in a large loss position quickly. If you are at all unsure of what you are doing, invest with a professional who knows the market. Investing via Stocks and Bonds If you don't want to buy an ETF or hold the actual currency, you can benefit from movements in the yen indirectly by purchasing stocks or bonds in Japanese-owned companies. As the yen appreciates against the U.S. dollar, it often gives Japanese stock prices a boost. Consider buying stock in companies such as Nissan, Toyota, Matsushita, or Mitsubishi. If you prefer debt instruments, invest in Japanese government bonds, with prices that will reflect the condition of Japan's economy in terms of inflation, GDP growth, and interest rates, to name a few factors. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. World Bank. "GDP (current US$) - Japan." XE. "JPY - Japanese Yen." XE. "XE Currency Charts: USD to JPY, 10-Year." Council on Foreign Relations. "The Size of the Global Carry Trade (Once Again)." Reuters. "TIMELINE: Milestones in the Yen's History." Council on Foreign Relations. "Abenomics and the Japanese Economy." Proshares. "UltraShort Yen." Invesco. "Invesco CurrencyShares Japanese Yen Trust."