I have some USD I'd like to move into Japan over the next year or so. USD is strong at the moment, relatively speaking, so it'd be nice to convert it all now, but I can't move it all that soon.
I saw that within my Vanguard account in the US I can buy FXY, which for a 0.40% expense ratio tracks the value of JPY. I am thinking to switch some of my Vanguard holdings into FXY so that I can lock in the current FX rate, ie hedge myself in case the JPY strengthens a lot before I can move my money over.
Does that make sense? Anyone have other thoughts? Moving all the money into Japan right now and converting to JPY isn't an option yet.
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Edited to add some numbers:
Let's say I anticipate moving around $200k USD. Because it's planned to move that money next year, it's not deployed aggressively now but is in an MMF (money market fund) earning let's say 3.5%. Today this holding is worth about 30M JPY. Let's suppose the FX rate might vary from 130-170 over the next year. That's a pretty broad range, but there is precedent for this, and bigger swings occasionally.
Therefore my USD would be worth anything from 26-34M JPY (200K x 130~170), or accounting for MMF gains after one year, about 27-35M JPY. To protect against that uncertainty, my thinking was put $100k now into FXY to effectively lock in the current rate, and sell FXY when I'm ready to move the assets over into Japan. Then my holdings would instead be worth:
15M JPY ($100K in FXY locked in now, minus 0.4% expense ratio, ie $400/year)
+
13-17M JPY, or 13.5-17.6M JPY including MMF gains over a year (remaining $100K floating against JPY)
=28.5-32.6M JPY total.
So my assumed worst case is either 27M JPY or 28.5M JPY, assuming an FX rate of 130, which is a pretty bearish scenario. This starts to look like more of a headache than it's worth but appreciate any feedback on where my thinking may be off. Also, this simulation is a bit simplified assuming I'll move everything over a year later, but in reality I'll probably be moving it over gradually in 2026, so it'll happen a bit sooner and therefore probably the FX would vary over a narrow range.
by JazzMeAmadeus