More than oil, gold or even Treasury bonds, the market s safe haven play during times of crisis over the past 24 months has undoubtedly been the Japanese yen often forgotten as one of the few assets actually higher in 2008, a year when almost nothing worked.

After treading water for most of 2009, the currency is again knocking up against the multiyear highs last reached toward the end of last year. Right now, it s hard not to ignore the yen s strength, which tends to gain as the market s appetite for risk diminishes. My fund currently holds a position.

The Yen s Bull Ride

CurrencyShares Japanese Yen Trust (FXY) 2 year

From a portfolio perspective, the yen provides an attractive element of diversification, showing slightly negative correlation with stocks and commodities and a slight positive correlation with bonds. No doubt the recent rally in bond prices has also put a bid under the yen.

Unquestionably, the biggest risk in currency markets is politics. Japan s central bank has a history of intervening to push down the value of the yen in an attempt to benefit export-heavy companies such as Canon, Toyota or Sony. Just this past weekend, Japanese Finance Minister Hirohisa Fujii told reporters If currencies show some excessive moves in a biased direction, we will take action , suggesting attempts to weaken the yen were possible. Still, there s also a belief the Democratic Party of Japan, which assumed power in August, will tolerate a stronger currency as a means of spurring domestic demand.

For individual investors not comfortable trading spot FX, there are three major options for gaining exposure. By far the most popular, and liquid, is CurrencyShares Japanese Yen, part of Rydex s suite of currency funds, boasts $500 million in assets and trades an average of 140,000 shares a day. Less attractive, at least from a liquidity perspective, is iPath ETN, an exchange-traded note (ETN), essentially an unsecured debt obligation, which charges the same 0.40% as the more-liquid CurrencyShares product.

With a 0.35% annual expense ratio, the WisdomTree Dreyfus Japanese Yen is the cheapest option, but still trades only a few thousand shares a day and has a scant $11 million in assets. Two leveraged products, Ultra Yen ProShares and UltraShort Yen ProShares (YCS) are also available.

As the market becomes more cost conscious, it s quite possible some of the initial liquidity that gravitated toward the first-mover FXY could find its way toward the less expensive JYF, although that has yet to occur. FXY also boasts a nascent options market, allowing investors to fine-tune their exposure, for example, by selling calls against existing holdings.

A New Fund From the Old Country

In reality, iShares newly- listed MSCI Emerging Markets Eastern European Index Fund is actually just a Russian energy bet, with over 50% of assets in oil/gas, including the two top names Gazprom and Lukoil. Although Eastern Europe is a vast region, Russia accounts for nearly 75% of the fund s holdings.

iShares MSCI Emerging Markets Eastern Europe Index Fund (ESR)

Source: iShares.com

With several other Russia-centric funds already trading, namely Market Vector Russia ETF, Templeton Russia Fund and Central Europe and Russia Fund, a more innovative approach might be to launch a product focusing on the emerging regional economies beyond Russia, namely Poland, Hungary, Kazakhstan and the Czech Republic all of which currently have scant representation in U.S. markets. Poland and the Czech Republic have no ADRs currently listed on U.S. exchanges, Hungary boasts just one, Magyar Telekom, the country s dominant fixed-line telecom concern.

Bruce s Bet

Making a bet in Eastern Europe is actor Bruce Willis, who is building a reputation as a vulture investor by picking up shares in distressed vodka maker Belvedere SA and taking a seat on the company s board. Shares of the Polish-French liquor manufacturer, which trade in Europe but not in the U.S., promptly rose on news of his investment.

Welcome to the Party, Pal

Belvedere SA (Paris-listed) 5 years