One way to profit from Japan’s quagmire is to bet on a declining yen.
Right now the yen is near an all-time high against the U.S. dollar. But this won’t last for long. A strong yen makes it very difficult for Japanese companies to sell good abroad. As Japan’s economy slows even further, due to the demographic cliff it’s facing, the government will have every incentive imaginable to weaken the country’s currency.
It’s always good to be on the same side of a central bank’s trade. By buying the USD/JPY forex pair (selling short the yen, while buying the dollar), you’ll do just that.
Here’s a chart of the USD/JPY going all the way back to the 80s.
Normally, analysts expect to see alternating “oversold” and “overbought” signals. What I see is that this pair hit the “oversold” level five times in a row. Just recently, it finally hit the “overbought” level.
This is telling me the USD/JPY is being kick-started into an upward trend where the yen will weaken and the dollar will strength.
The last time this very same pattern occurred was in the mid-90s. During that time, there were the same five “oversold” signals in a row, and then the kick-start overbought signal.
The pattern preceded a 51% gain in the U.S. dollar versus the yen.
Will it happen just the same this time? I expect it will. Watch for the yen to weaken against the dollar for years to come.
If you haven’t done so already read the Survive & Prosper issue on “Japan’s Economy Reborn! Or Not…”.