What a Weak Yen May Do to Earnings

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Think the yen's weakness is just an issue for currency geeks? Think again.

"We are in a currency war," said Wolfgang Koester, chief executive and chief currency strategist at Fireapps, a company that helps corporations manage FX risk. With a new Japanese prime minister putting pressure on the Bank of Japan for more aggressive stimulus moves, "there is a general race to weaken their currency, which is actually good for companies producing and exporting," but "not good for the Americans."

In fact, from Japan to Brazil to various European countries, "everybody is really racing for a weaker currency to have their products much more competitive." On that score, the Federal Reserve isn't looking so effective right now, Koester said — but even without Fed action, a failure to reach a deal to avert the "fiscal cliff" could send the dollar sharply lower.

With all that potential currency volatility out there, Koester said the key for investors is to look for companies that are "currency agnostic" by managing their FX exposure. "This volatility is all over the place and that's not good for corporations."

Companies vary in their ability to manage their currency risk, Koester said. For example, in pharmaceuticals,"Pfizer is probably more prepared than a Bristol Myers Squibb," he added. Ultimately, "globally they all have the risk," he said. "Now the question is who manages it better."

One tip: The currency risk isn't limited to companies that do business in Japan.

"What you're seeing is that companies at $500 million, a billion and above are typically doing business in thirty or forty countries," Koester said. "If you look at all the currency pairs and the interaction thereof, you could be talking a hundred or more currency pairs."

Be careful out there.

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