Japan's Yen Breaks 94 Barrier

by: Profit Fan

Well, this morning I woke up to alerts from Seeking Alpha that I can only describe as music to my ears. I have been writing recently on shorting the yen and, while it has been a bumpy ride as of late, there are no indications that this trade is going to slow down any time soon. This morning, the yen broke through the 94 JPY:USD barrier that it has been testing and it currently trades at 96.28 JPY:USD.

(Click to enlarge)

To Recap what has taken place since I last wrote about the Yen:

1. Hauhiko Kuroda was nominated and will be taking over as head of the Bank of Japan following the departure of Masaaki Shirakawa.

2. Shirakawa, in his last meeting yesterday, left the current bank lending rate unchanged ahead of the arrival of Kuroda.

3. Increased tensions between Japan and China have been putting pressure on Japan and for the first time, China's Commerce Minister has voiced his concern over the monetary policies of the Yen and its affect on China.

Japan's Major problems - previously reported:

1. Japan's ratio of government debt to gross domestic product, now at approximately 230%, is by far one of the highest in the world and growing.

2. Just recently, Japan's current account deficit turned negative, something that hasn't happened since the 1980's and only adds to the debt-to-GDP ratio.

3. Government tax revenue is approximately equal to interest on government debt and social security, leaving nothing for other programs, improvements or even debt reductions.

4. Political instability: six prime ministers in the past five years.

5. Nuclear energy plant closures have dropped domestic energy production and forced Japan to resort to importing energy from its neighbors at a time when the Yen's devaluation has driven up prices... with more to come.

Ways to make money shorting the Yen:

How to play this?

1. Buy YCS, Proshares UltraShort Yen ETF.

This ETF has moved from 52 week lows to 52 week highs recently with seemingly more to come as its performance moves inverse to that of the yen.

2. Buy FXY Puts

FXY moves with the yen so long puts can be purchased to benefit from future declines.

3. Buy YCS and Calls.

4. Buy WisdomTree Japan Hedged Equity ETF (NYSEARCA:DXJ), DBX MSCI Japan currency Hedged Equity Fund ETF (NYSEARCA:DBJP), and iShares MSCI Japan Index (DBJP).

As the yen has fallen, Japan equities have surged.

5. Buy PowerShared DB Inverse JGB Futures ETN (NYSEARCA:JGBS) and PowerShares DB 3x Inverse JGB Futures ETN (NYSEARCA:JGBD).

This play has yet to move but any sell-off of Japan bonds will move these two upward as Japan's bonds currently trade at record highs.

These bets are sure to yield a bumpy ride so only speculative amounts should be placed. Remember, you can only lose what you put in and you shouldn't bet more than you can afford to lose … these are strange times. If you don't believe me, check out demand vs. the price of gold (NYSEARCA:GLD)!

Disclosure: I am long YCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I also have long FXY Puts and YCS Calls.