Japan has made significant strides in the global market this year. As the uncertainty in financial markets begins to die down and the stock market begins to stabilize, investors are now looking to jump into fx trade with both feet.
For people considering investing in the Japanese money market, it is crucial to understand why it provides such an attractive investment opportunity.
Why You Should Consider Trading in Japan
Like other lucrative economies such as the Netherlands, Japan ranks 10th on the peace index, 2nd in education, 3rd in GDP, 4th in health, and 16th in Global innovation. You’re looking at a country with the most stable political environments, the highest-grossing economy, and an impressive world presence in the automotive and technological sectors.
With global commerce on its way to recovery, Japan seems like a good place for investors to build a portfolio. The fundamental question, however, is-should you focus on Japanese securities? Or buy US stocks (米国株)?
Should You Buy US stocks (米国株) or Trade Japanese Securities?
Before making a decision, there are a few considerations you should take into account.
The global economic recovery index
The Japanese economy thrives mostly on exports and industries that are economically sensitive. A fundamental analyst would consider this influx of foreign revenue to indicate a potential rise in the Yen’s stock index. The fact that the Japanese market also has a significant global presence in manufacturing and other revenue-intensive industries means that economic recovery will benefit the Yen more than the US dollar.
Note that the USD/YEN currency pair is on a shortlist of 7 that makes up 70% of the total fx market trade volume. Essentially, as the borders begin to open and trade intensifies, it is very likely that investors will favor the Yen over the dollar.
Elimination of Minimum Charges on US Stock Trades
Another factor that may tip the balance in favor of US stocks is the recent decision by three major Japanese securities to lower trading fees for US stocks. The main aim of these fee cuts has been to attract retail investors to buy US stocks (米国株) despite the increase in some share prices.
While many investors preferred Japanese stocks in 2018, the prospect of low trading fees is beginning to attract more people towards US stock trading. Although these fee cuts may not be massive, the potential for less cost is gradually attracting more people in favor of the dollar.
Whether or not this fee elimination makes a difference for this currency pair is still to be seen.
The Depreciating Yen
Japan gains most of its revenue from exports. To put this in perspective, exports alone form 17.55% of the countries total Gross Domestic Product, which translates to roughly $1 trillion! This means that a weakening Yen makes exports more attractive and increases sales for many local industries.
For the most part, fx rates favor Japan, meaning many traders will opt against the US dollar. These rates are working in Japan’s favor because only 40% of US revenue comes from abroad.
The Consistent USD
Another critical consideration is that the US dollar is the one common denominator in most trades in the fx market. This currency is on one side of almost 90% of transactions on the stock market, making it a fundamental cog in global finance. The concerning part for many investors is that it has very slight price movements-hence many traders stick to moving small units.
In conclusion, there is the feeling that both these currencies have their perks and pitfalls. As to which of the two provides the best opportunity-well, that all boils down to a matter of opinion.
The Japanese fx market plays a very critical part in global commerce. For investors looking to tap into this lucrative market, now is the time to do it.