Yen/USD Rate

What makes it so Important?

USD$1 = xxx.xxx YEN shows how much Yen can be converted from USD$1. When Yen is relatively stronger than USD the situation is not good for Yen Carry Traders.

Here is the simple analogy to understand basic of Yen Carry Trades. Imagine you borrow interest free money (Yen) to invest in US market. At the beginning, for every 125 Yen you get USD$1. In situation of your investment yields about 10% you shall gain 10% (USD$1.10) because it is interest free. However, in one very fine day, the Yen becomes relatively stronger than before. Let say you converted back USD$1.10 with USD$1 = 110 Yen rate, you receive 121 Yen and you still loss of 4 Yen.

So what is the point? You will not wait the Yen to become stronger before converting it to Yen to avoid unnecessary losses. You will then sell all your investment before the situation turns sour which is unfavored to the market.