Urgent Message From Japan: Sell the Yen

Last year was tough for the Japanese.

During the spring, they survived the horrific tsunami and ensuing nuclear disaster. They were forced to close 50 out of 54 nuclear plants. As a result, Japan suffered through last summer with a severe electricity shortage. They did so quietly. In fact, suffering quietly is a specific Japanese trait with its own name, “Gaman.”

The tragedy brought outpourings of sympathy and offerings of assistance from around the world. Then Japanese companies began to send funds home, in the billions of yen, to help with rebuilding. 

This repatriation of funds caused the value of the yen to soar.

Citizens could buy more imports, but export companies – the lifeblood of Japan – suddenly found themselves earning a lot less.

So the Bank of Japan (BoJ) gave exporters a boost in the weeks that followed the tragedy. They printed billions of yen. Typically, such a move would cause the currency to devalue, but the forces pushing the currency higher – forces such as the repatriation of yen back into the country – were just too much for the yen to overcome. After a brief move lower against the U.S. dollar, it shot higher.

How high?

Well, five years ago it took 120 yen to buy $1. Two years ago, it was 90 yen for $1. Last year, it was 80. By mid-2011, the ratio was 75 yen to one U.S. dollar. This crucified Japanese exporters like Honda and Toyota, sapping them of much-needed profits. This came at the same time the country was importing very expensive oil.

Then, at the end the year, the other shoe finally dropped. Japan posted its first trade deficit since 1980. In fact, it recently reported a record high trade deficit of $17 billion.

Can you hear that? That’s the sound of the Japanese economic machine grinding to a halt.

A Living Example of Deflation

Let’s put this into perspective…

When any country has a trade deficit, it means it’s selling less to foreign nations. So, the net flow of currency is out of the country… not into it.

For a country like Japan, with an aging population, declining savings and a debt-to-GDP ratio of 235% (well over that of Greece), any trade deficit is too much to handle. So the Bank of Japan did what any self-respecting central bank would do: it announced an inflation target of 1%.

Sounds good, right?

After all, 1% is really low.

However, Japan’s problem isn’t about bringing inflation down to 1%. It’s about getting inflation UP to 1%.

The problem is, the Japanese have been stuck in a deflationary environment for almost two decades. To reach a 1% inflation target, the Bank of Japan must print yen with abandon so the currency devalues and prices rise. And it’s already started doing just that.

The yen has fallen from 75 to over 80 in the past few weeks, a trend that will continue for several months. This gives you a wonderful opportunity to position yourself for a profit boom from the yen’s bust.

Go short the yen against the U.S. dollar and let the Bank of Japan “print” you profits.


Rodney

P.S. This yen play isn’t the only boom and bust opportunity in the forex market right now. The dollar is due for a boom of its own. Harry explains why this will happen and how you can use this second currency opportunity to add to your profits. Click here to access this powerful information right now.

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.