JPY 01 (May 08 - Oct 11)

[winston]

The Next Currency to Crash By Dr. Steve Sjuggerud

"What's your slam-dunk currency trade right now?"

I asked my friend Jack that question earlier this week...

Jack's the best guy I know at currency analysis. I've known him for 16 years. Back in the mid-1990s, we worked 20 feet away from each other at a firm specializing in international investing. Jack taught me a lot about currencies and managing my trading (cutting your losses and such).

This week, I drove down to tiny Palm City, Florida, where Jack's Black Swan Trading group is based. We spent a few hours catching up.

Jack explained his favorite trade right now... and he explained an easy way for an individual investor to take advantage of it...

In short, Jack thinks the Japanese yen today is like a ticking time bomb. It's ready to explode... We just don't know when. As of this month, the time may be right.

You see, right now, the Japanese yen is extremely overpriced. It's just off a huge high versus the dollar. The only time it's been higher against the dollar was in early 1995.

Since that's the only similar high in the yen's history, let's take a closer look at what happened next...

In 1995, the Japanese yen was comically overvalued. Everyone knew it. But just like the last six months, the yen kept going higher. Then the bottom fell out.

Soon after the yen peaked in 1995, it crashed... The yen lost 20% of its value in three months and a total of over 40% of its value in three years. That's an astonishing fall in the value of a developed country's currency.

Back then, if you'd bet against the yen with just a little leverage, you could have made a whole lot of money – easily triple-digit gains... even more depending on how you traded it.

Jack told me we're seeing a similar setup today in the yen... and the potential is there for similar gains.

You see, the Japanese can't raise interest rates, since the economy is in the tank. And the Japanese government is issuing more debt to make up for its shortfall in tax revenues. So in essence, it's creating more money out of thin air.

Look, when a currency pays no interest, and its government is writing I.O.U.s, then the value of a currency should fall. Nobody wants something that pays no interest and is increasing in supply.

But for the last six months, the Japanese yen has done the opposite of what it "should" have done. It's gone up... until this month. Jack believes after its huge rise from April, the yen may finally be changing its trend.

In the past, it was tough for individual investors to bet against the yen, particularly in retirement accounts. You couldn't trade futures or options, and you couldn't go short. But now, there's a way to bet against the yen AND get a bit of leverage AND do it all in your retirement account. It's through the ProShares UltraShort Japanese Yen Fund (YCS).

Here's a chart of YCS over the last six months. You can see as the yen has strengthened, these shares have crashed... down from $25 to $20 in the last six months.

But the fund is already up from $20 to $21 this month as the yen has weakened. (It's a "double inverse" fund, meaning for every 1% move down in the yen, this fund should move up 2%.)

A move back to April's level of $25 would be a 25% gain from YCS' lows around $20 – and even then, the Japanese yen would still be near its all-time highs versus the dollar. My point is, even after that gain, there's still much more room to run.

If you know my writing, you know I look for three things in a trade:-
1) cheap,
2) ignored or hated, and
3) an uptrend. In the yen's case, we have all three.

Time to follow my friend Jack's advice (the best currency analyst I know), and bet against the yen. The double-inverse Japanese yen fund (YCS) is the smartest way to play it. Thanks, Jack!

Source: Daily Wealth

[winston]

Morgan Stanley Sees ‘High Risk’ of Yen-Dollar Intervention By Daniel Tilles

Dec. 11 (Bloomberg) -- The chances of Japanese officials acting to weaken the yen are rising, Morgan Stanley said.

“Our proprietary foreign-exchange intervention model is signaling a high risk of intervention in dollar-yen,” Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley in New York, wrote yesterday in a report.

“The key factors contributing to this heightened risk are a mispricing of relative growth outlook between the U.S. and Japan and excessive long yen positions. Our dollar-yen intervention model shows the probability of official action rising from 29 percent last week to 34 percent this week.”

http://www.bloomberg.com/apps/news?pid= ... mb63IwmDE4

[winston]

1) The previous government has continuosly push the Yen down. Will this new goverment be doing the same thing ? I doubt it. At least not intially..

2) Why would somebody wanna lend money to the Japanese government at 0% interest rate unless they believed that the Yen will rise ? And if the Yen drops, they would be forced to raise interest rates, which may actually be a good thing. The households will then have more disposable income for domestic consumption.

3) If they raise it high enough, some of the carry trade may be unwound and some Yen may even flow back to Japan.

4) If there's an unexpected event, a lot of the Mrs Watanabe may be caught as they have been using their Yen ( and sometimes on high leverage ), to invest in the higher yielding currencies. It's a no brainer until it knock their brains out

===================================================

Stocks Fall, Yen Rises on Hatoyama’s Unfilled Mandate (Update1)
By John Brinsley and Sachiko Sakamaki

Dec. 11 (Bloomberg) -- Japanese Prime Minister Prime Minister Yukio Hatoyama swept into power 10 weeks ago with a pledge to revive the economy and stand up to the U.S. He has governed as if his mandate were to tread water instead.

Hatoyama delayed an emergency budget this week to add more spending to appease a coalition partner with eight parliamentary seats to his 421. His administration has given mixed signals about its tolerance for a strong yen, and irritated its own constituents and the Obama administration by failing to resolve a dispute over American troop deployments.

“In terms of decisiveness, there’s something lacking in Hatoyama,” said Koichi Nakano, a political science professor at Sophia University in Tokyo. “The economic situation as well as tension with the U.S. over the base issue has spun out of control.”

The yen is trading at almost a 14-year high, 88 yen per dollar, eroding export earnings at Tokyo-based Honda Motor Co. and Sony Corp. Japan’s Topix index has fallen 8 percent since the Democratic Party of Japan took power on Aug. 30, missing out on a 6.3 percent rally in global stocks in that period.

http://www.bloomberg.com/apps/news?pid= ... ah.doJnjAg

[kennynah]

expensive yen is not sustainable for an export oriented japan...

look around your current environment and see if you have at least 3 japanese made electronic equipment?

the post war government knew the importance of a weak currency so as to practice international dumping of their goods legally.... it was exports that made japan to what it is today... no japanese cabinet can survive a year if their export figures continue to slide unabatedly

[winston]

no japanese cabinet can survive a year if their export figures continue to slide unabatedly

They will worry about election in a few years not now. Therefore, it's a good time for the new government to see where's the limit, as the previous government has consistently supported the exporters.

And it cost a lot of money to artificially keep the Japanese Yen low. Anyway, a lot of the Japanese exporters have also moved their manufacturing bases outside of Japan.

A more worrying problem is their public debt. Where's the money going to come from to pay for those debt ?

[Poles]

high value manufacturing are still in Japan.....so had even move back to Japan inthe recent years....as low labour cost cannot offset japanese efficiency & quality.
Domestic market is in pretty big shit.

[kennynah]

They will worry about election in a few years not now. Therefore, it's a good time for the new government to see where's the limit, as the previous government has consistently supported the exporters.

And it cost a lot of money to artificially keep the Japanese Yen low. Anyway, a lot of the Japanese exporters have also moved their manufacturing bases outside of Japan.

A more worrying problem is their public debt. Where's the money going to come from to pay for those debt ?

you may recall that japanese premieres have been voted out of office during their term... japanese consortiums are as powerful as the yazukas in japan...not to mention that some multinational corporations could well be controlled by yazukas themselves in present day...

where to pay for public debt? of cos, from their exports...from foreign income...where else? print money like the americans? it wont work becos yen is not a dominant world currency.. and there's no such thing as -ve interest rates, preventing JCB from lowering the already zero % rates...

given that japanese have the innovation spirit, this crisis may motivate them to create more interesting innovation for the world... we will see slicker TVs, MP players and other consumer electronics and robotics....

[millionairemind]

Pimco Says BOJ May Sell Yen, Buy Debt to Spur Economy (Update3)
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By Wes Goodman

Jan. 11 (Bloomberg) -- Pacific Investment Management Co., which runs the world’s biggest bond fund, said the Bank of Japan may need to sell yen or buy long-term government bonds in “unlimited amounts” to combat deflation.

“Japan’s problem is deflation, not inflation as far as an eye can see,” wrote Paul McCulley, a member of the investment committee, and Tomoya Masanao, the head of portfolio management for Japan, in a report on the Pimco Web site. “An ‘all-in’ reflationary policy is what is needed,” according to Pimco, which is based in Newport Beach, California.
http://www.bloomberg.com/apps/news?pid= ... L0PU&pos=4

[winston]

Not vested If the Yen drops, it would be good for their exporters and maybe Japanese Equities ...

Dollar May Climb 17% Versus Yen on Ichimoku: Technical Analysis By Candice Zachariahs

April 30 (Bloomberg) -- The dollar may extend gains to the strongest since August 2008 if it closes above 95 yen, rising through the top of a weekly ichimoku cloud and its 21-month average, said Barclays Capital, citing trading patterns.

The dollar, set for a second monthly gain versus Japan’s currency, “is testing its weekly cloud cap,” at 94.30 yen, strategists led by Jordan Kotick, the New York-based head of technical strategy, wrote in an e-mailed note. The currency’s 21-month moving average is at 94.76 yen, Bloomberg data show.

“Both these trend-following techniques have a remarkably good track record of calling one- to three-year U.S. dollar moves over the last 25 years,” the analysts wrote. A close above 95 yen “would target 110.”

The dollar traded at 94.02 yen as of 9:29 a.m. in Tokyo, little changed from yesterday New York. It advanced 0.5 percent this month and is forecast to end the year at 100 yen, according to the median estimate of economists compiled by Bloomberg.

The greenback reached 110.29 yen on Aug. 25, 2008.

“The April month-end close promises to be an important one for the dollar,” Kotick and his team wrote.

http://www.bloomberg.com/apps/news?pid= ... 5OZor8Jf1U

[kennynah]

i've heard this chatter recently too, that yen can climb back to 100 soon