No. of Recommendations: 4
If go long, isn't currency risk an issue, and if so how best to hedge?
"Best" criteria may include "easiest" if "easiest hedge" does a reasonable job, but "optimal hedge" is complicated.
The best would be to take out a loan in yen, ideally secured by the stocks you're buying. That is what Berkshire did, but is admittedly pretty tricky for most people. Wealth management banks will often do it for you, though they will want quite a lot of security for the loan.
Second best in terms of matching the correct hedging effect at low cost would be to buy the stocks and sell some yen futures. The problem with this is that one side will definitely move against you. Other than being hard to watch (the case for all hedging), if the yen rises you will make money on a mark-to-market basis on the stocks (measured in dollars), but you will lose CASH money immediately from the futures: that cash has to come from somewhere. So this really only works if you're keeping a substantial cash pile around.
If your bullishness were on the whole Japanese market rather than just the sogo shosha, a cute way to do it would be to go long yen-denominated futures contracts. This is a wager that the index will rise denominated in yen, nothing else. These future do exist, but I'm not sure what jurisdictions and brokers make them available.
Jim
