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Short Commodity Currencies

The yen’s strength against the dollar has eroded profits of major Japanese exporters like Sony and Toyota, pouring more salt into the gaping wound that the slump in global demand has caused. This pain has prompted the Japanese government to launch a $16.7 billion fund to rescue key industries, whose very survival have been threatened by the financial crisis.

But all is not lost thanks to falling commodity prices. “As commodity prices dropped, we’ve seen the shortening of contracts … much less hedging amongst importers, and that allows them to benefit from the strong yen at the moment,” said Naomi Fink, Japan strategist at Bank of Tokyo Mitsubishi on CNBC Asia Pacific's "Protect Your Wealth".

Another way to protect your portfolio, Fink added, is to short commodity currencies like the Australian dollar and Brazilian real.

“There’s probably going to be deterioration in terms of trade in countries like Australia and Brazil,” she noted, especially with the onset of falling iron ore and coal prices as China continues negotiations with the two countries.

"I’d expect to see further downside in those industrial commodities, and further downside in the currencies in the Australian dollar and Brazil real versus the yen (and) some of the Asian exporter nations, such as Korea for instance," Fink said.

Finks recommends investors long the Korean won as the currency was oversold in 2008. "This balance of payments adjustment/deterioration in the commodity producers’ terms of trade is going to contrast unfavorably with Korea’s improving terms of trade,” she explained.

As for the battered Japanese stock market, Fink thinks that the trough has been reached in October and that will probably hold firm. But it will continue to trade range-bound in 2009 -- with domestic investors buying on dips and foreign investors selling into rallies. “The trough will hold…and perhaps we've passed that turning point. It’s just that we’re still ways away from a real rally, from a real sustained recovery,” she warned in her parting shot.

Comments? Questions? Send them in here.


Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."