The Dollar has been in a free-fall against the Yen. There are a number of reasons, most related to the coming end of ZIRP and the repatriation of massive amounts of Japanese capital that was borrowed for nothing and invested offshore. The reasons are beyond the scope of this blog but sentiment appears to be turning against the dollar.
One way to add some Yen-Dollar portfolio protection is to buy Japanese equities. You can buy ETF’s like the iShares (EWJ), but you have exposure to the Japanese export economy, something that could be negatively impacted by a rising Yen. I think this is an acceptable risk (Opinion: Taiwan and China stand to benefit most from China’s growth) but some don’t, so another solution is needed.
My preferred way, and one that is consistent with our investment strategy is to buy NTT (Nippon Telegraph and Telephone Corp) equity (NTT). NTT generates large amounts of cash and has little foreign market exposure. More importantly, the cash it generates is domestic sourced Yen.
You then own a speculative play on a company that is at the forefront of innovation and committed to driving down operational expenditures in their network. More importantly you’re buying Yen cash flow with your Dollars, and getting the currency hedge you need.
I believe buying NTT is less risky than buying the whole Japanese market, provides a superior currency hedge, and holds the potential for upside as they find ways to reduce costs and launch new services with their advanced infrastructure. It’s a Japanese value stock and a great way to reduce your dollar exposure.
Do your own research, don’t make decisions based on what you read here, and read my disclaimer.
Update May 15 – Seeking Alpha expanded on my idea and added some valid criticism.