More Yearning for the Yen

by | Sep 8, 2000 | Archives

In 1968 I took my first flight ever from Portland to Hong Kong and the first touchdown was in Tokyo. I spent several hours in the transit lounge and though thirty two years have past several memories are still clear. One was how the restaurant in the lounge showed each of their meals in a plastic model. Beneath the model was the price in yen and a conversion into US dollars at a little over 400 yen per dollar.

Since that time I have watched the yen rise in value from this low of 400 to a high of 79 yen per dollar. In this entire period i have noticed a regular trend line which puts the yen's value today at about 120. A variety of factors affect the daily, weekly and even monthly value of the yen, but for long term if I see the yen above 120, I feel it is too strong. If the yen is below 120, it is too weak.

This simple measure has helped me earn extra income time and time again. My best recommendation in this was when I suggested borrowing yen at 108 (the yen was too strong) and unloading when it fell to 146 (it was too weak). But long periods of strength or weakness can elapse between returns to the long term trend. Years may pass when the yen is too weak or too strong.

Look at interest rates. Look at trade balances. Look at productivity. Look at politics, economics, stock market trends and all the factors that can affect the short term value of the yen. But in the long run, let the 120 mark be a general guide. If the yen is stronger than 120 and other factors suggest borrowing the yen (such as low interest rates), then borrow. If the yen drops below 120, borrowers beware!

Like all general rule, never trust them explicitly. Keep an eye on really big social moves that might cause the rule to weaken. Greater productivity in Japan in the 1970s and 1980s helped the yen strengthen. Another such burst of Japanese improvement could help make the 120 marker 115 or 110.

We will have an entire session at our upcoming Oct. 13-15 course here at the farm on how to judge the real value of currencies.

Until then, good investing!