Back in 2008, the Japanese yen reigned supreme. It seemed that it could do no wrong. What caused all of the yen strength when this low-yielding currency is normally the dog of currencies?

Investors started dropping stocks like a bad habit in 2008. Commodities also were shunned. In good times, these are the things that go up (or at least are stable). However, 2008 was anything but stable for most financial instruments.

Money made a run for what seemed safe. What seems safe when the sky is falling? It's the stuff that has been beaten down for years. Since the yen had been sold off for about seven years (back-to-back) against most higher-yielding currencies, this beaten-down currency became a great defensive candidate to pour into. That's exactly what investors did in droves.

Also, as investors around the world were avoiding risk, they were moving money out of the higher-yielding currencies which had gone up for multiple years back-to-back against the yen, fearing that these had the most room to fall the most.

All of this put the wind to the yen's back. All of this money that was pouring out of stocks and commodities had to go somewhere. The yen became the prime target for this money, along with the U.S. dollar and U.S. Treasuries.

In 2009, we will see the bond bubble burst as money flows back into stocks, commodities, and higher-yielding currencies. Thus, treasuries, the dollar and the yen will all suffer in 2009 as stocks stabilize and sanity creeps back into the markets.

Therefore you will see the yen fall against most every major currency out there in 2009. In fact, even the greenback will likely prosper against the yen. The buck will fall against most every currency out there in 2009, but it will likely gain some ground on the yen for a couple of important reasons.

Firstly, the yen went up more than the dollar in 2008. As soon as investors feel the coast is clear, they will be the quickest to pour out of the yen and into other currencies. So, while the dollar and yen will both fall in 2009, the yen will fall faster. That will cause the USD/JPY pair to eventually rise, since the dollar will be the stronger of the two.

Secondly, Japanese exporters' balance sheets are bleeding. I'm talking about household names like Toyota, Honda, Isuzu, Panasonic, and Sony. These exporters have to hedge their bets against the dollar in order to preserve their profits. If they don't judge this currency risk correctly, their profits start to erode rather quickly.

This happened in 2008. Japanese exporters as a whole were hedged down to USD/JPY 92.00. The USD/JPY has gotten as low as the 87.00 area. This has been such a blow to Toyota that they will report their first operating loss in over 70 years. That's a huge deal, since this often almost never happens.

This sharp rise in the yen has caused the Japanese economy to slow down at the quickest pace since 1974. That's something that doesn't happen very often at all.

The Bank of Japan will eventually do whatever it takes to get the high-flying yen under control. In fact, the recent jaw-boning that they've done so far has caused an initial sell in their currency as investors fear the central bank's intervention.

While the bank is not quick to intervene, once they do it's fast and furious. The fast "selling of yen" would erase much of an investor profits quickly. As these investors scramble to close out their positions in order to retain profits or prevent further losses it causes even more yen selling, which ends up helping the bank.

Finally, the yen will go down as fears are starting to subside in the market. Fear is measurable as traders look to the VIX (Volatility Index) and the TED Spread (difference between treasuries and eurodollars). As the readings fall, as they have been recently, the fears subside and money starts to head back into riskier assets that have a better, longer term growth potential.

Fear was the yen's best friend in 2008 and the lack of it in 2009 will be its worst nightmare in 2009. However, Toyota, Honda, Isuzu, Panasonic and Sony will be glad to see the yen head lower once again.

Therefore, an investor can take advantage of the yen's fall by buying USD/JPY, EUR/JPY or AUD/JPY in a forex account. They can also buy up the healthiest Japanese export companies as the yen's fall returns these companies to profitability once again.

Keep in mind that, even with an American auto bailout, Toyota and Honda will still gain market share as they weren't nearly as beaten up as GM, Ford, and Chrysler.