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Is the Yen Overvalued? (A Quick Look)

September 29th, 2009 Michael McDonough

The Japanese Yen reached an eight month high yesterday against the USD (see chart), which led Japan’s finance minister, Hirohisa Fujii, to deny to Bloomberg that he is supporting a stronger Yen.  Nevertheless, it is my belief that the Yen may be overvalued and could experience a correction over the near-term.  Supporting this view is weak Japanese exports suppressing trade balances coupled with what would appear to be a slowdown in the unwinding of Yen carry trades.  With this in mind I believe investors should consider–but I am not recommending– selling Japanese Yen against the USD, or an export oriented currency such as Brazil’s BRL.  With this in mind I took a long position in ProShares UltraShort Yen ETF (YCS) yesterday.  This ETF is designed to return double the inverse daily relationship between the USD’s price of the Yen.

Yen/USD

JPY

YCS vs. JPY

JPY-YCS

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