Investors can profit in 2011 by buying the U.S. currency against Japan

Investors can profit in 2011 by buying the U.S. currency against Japan as the yield difference between bonds of the two countries is expanded for the dollar, according to Franklin Templeton Investments.

U.S. yields up in the midst of an economic recovery and concerns about the size of the government loan program, wrote Michael Hasenstab, who heads the 43.7 billion U.S. dollars Templeton Global Bond Fund in San Mateo, California. Also increase as the program of the Federal Reserve buys Treasury is nearing its end and the markets speculate on the central bank's ability to reduce your balance before inflation is based, wrote in a report that details Franklin Templeton 2011 perspectives.

"There can be potential opportunities to capitalize on increasing returns in the U.S. for the long position of the dollar against the Japanese yen," wrote Hasenstab. "There was a strong correlation between the bilateral exchange rate and the difference between yields in the U.S. and Japan, and we expect this relationship to continue, given the large investment flows involved."

The dollar traded at 83.85 yen from 6:55 am in London after rising to 84.51 yen on December 15, the strongest level since 24 September. The dollar has weakened 9.8 percent against the yen this year.

The Templeton Global Bond Fund has exceeded 97 percent of competitors in the past five years.

Large differentials

Treasury bonds two years offers investors up to 44 basis points in extra yield on 15 December on similar maturity Japanese government, the most since July 28. Yields on benchmark 10-year Treasury rose to 3.56 percent on Dec. 16, the highest since May 1913.

Franklin Templeton expects yields to rise in most countries that the global economy recovers, Hasenstab wrote. To protect against loss in global bond portfolios, said his investment team "significant reduction" mean duration of this year and did not own Treasuries and Japanese bonds and a minimum investment in the euro area debt at the end of September.

Hasenstab said he is in favor of short-maturity bonds in countries such as Australia, Israel and South Korea. These positions are likely to benefit due to currency gains, he wrote.

"We hope that the currencies of economies with relatively strong growth, the policy is likely to tighten in the short term, it should appreciate against the currencies of the G-3, where monetary policy is likely to remain loose for a extended period under Hasenstab.