The Yen Collapse Has Only Just Started

madhedgefundtrader's picture

Paid subscribers who took my advice to clamber into short yen positions at ¥88.5 on March 4 were richly rewarded with a major breakdown in the Japanese currency today to ¥92.3 (click here for the call in my March 5 letter at ).

Repatriation of yen by Japanese banks and institutional investors magically levitated the yen in a narrow sideways trading range around ¥90 for the past two weeks. However, as we approach that April 1 deadline, support is falling away like a dress off a prom date.

There is another development that will work to your advantage with this short position. The recent risk reversion in the global markets drove the yen to artificial highs, as hedge funds unwound their carry trades by buying yen and selling everything else. This has driven the premiums on calls to unnaturally high levels, and left puts ridiculously cheap. 

Now the hedge funds are going the other way. When the Japanese yen starts to burn down, this will add a lot of fuel to the fire. This also makes the euro/yen cross a decent buy here at ¥123.

I don’t have to tell you that the Japanese government absolutely hates the yen at this level because it is killing exporters like Toyota Motors (TM), Nissan Motors (NSANY), Sony (SNE), and Nippon Steel. They’ll move Mount Fuji if they have to in order to get their currency lower. I understand that Bank of Japan governor Masaaki Shirakawa is taking private lessons from Alan Greenspan on how to collapse a currency (Alan, baby, you were so good at it!).

There is another vulture circling over the yen. When all of the angst about Greece resolves itself, the world’s credit sharks are going to hunt for a new victim. They’ll be looking for a country whose soaring debt equals 100% of GDP, suffers a terrible demographic outlook, and pays zero interest rates. Using these criteria, Japan looks like an incredibly ripe piece of fatty blue fin tuna sushi. This is why credit default swaps on Japanese debt have doubled since last summer.

Of course, I only speak Japanese, spent a decade living in Japan, another decade running  a Japanese prop desk, a third decade managing a Japanese hedge fund, and published three books on the Japanese financial system, so what do I know? But if I’m right, there is a baseball sitting on top of a T-ball stand just begging to be smashed out of the park.

Look for the yen to move to ¥95 very quickly, then ¥100 to the dollar in months, followed by ¥120, and ultimately ¥150. If you want to get into the beginning of a major trend, instead of the middle, or the end, like everyone else, this is your big chance. Buy the short yen ETF (YCS).

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out of consensus analysis, please visit me at . There you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.

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Buck Johnson's picture

It will collapse of it's own weight.

dcb's picture

good time for this trade.

DoChenRollingBearing's picture

OK, MHFT, we will see re YCS.

We buy bearings from Japan, a weaker Yen will do us well.

dark pools of soros's picture

its all a merry go round shake down - country to country.

Destroy the purchasing power and make the weak hands shake - then the Plutos swoop in and grab what they want - then you inflate and give the winkwink to start selling back to the peasants telling them they have to have hard assets to keep up with inflation..  then crash it again..  move to next country to keep them guessing..


as long as you are invited to the party there is no worry.. that leaked Citi paper should be posted on every web site and handed out to every corner store in the world

Orly's picture



P.S.  What leaked Citi paper?

callistenes's picture

I especially like this little ditty from page 10:


Our whole plutonomy thesis is based on the idea that the rich will keep getting richer. This thesis is not without its risks. For example, a policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash.Whilst the rich are getting a greater share of the wealth, and the poor a lesser share, political enfrachisement remains as was – one person, one vote (in the plutonomies). At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich. This could be felt through higher taxation (on the rich or indirectly though higher corporate taxes/regulation) or through trying to protect indigenous laborers, in a push-back on globalization – either anti-immigration, or protectionism.We don’t see this happening yet, though there are signs of rising political tensions. However we are keeping a close eye on developments.



dark pools of soros's picture

glad they are keeping a close eye...  what will tip them off?  pitchfork sales at walmart?

everything is sooo dismissive:

"We have lumped the bottom 40% into one to emphasize how relatively small their income and wealth shares are."

here is both parts for the full read:


InvestorGator's picture

We may be living in Wonderland right now, where markets don't make much sense given the fundamentals. However, as long as we remain in Wonderland, we have to trade that way. There may be no logical reason for a US recovery, but I definitely see the Fed raising rates before Japan would even consider it. The Yen carry trade will resume. I'll look to the crosses more than UsdJpy, but we do have a breakout on the weekly chart as well as higher intermediate lows and highs. Looking bullish for now.

alexdg's picture

And I thought that shorting the GBPJPY would be the trade to be in... Down from 150 in mid Jan/10 to current 137 now. Faster than the Euro has fallen. And that's fast!

Grand Supercycle's picture


USDJPY weekly chart is now bullish.

Daily chart is overbought atm.

nathan1234's picture

The BOJ has to keep selling Yen to devalue it

and buying what?

the US$? the Euro?


fresbee's picture

Of course, I only speak Japanese, spent a decade living in Japan, another decade running  a Japanese prop desk, a third decade managing a Japanese hedge fund, and published three books on the Japanese financial system, so what do I know? But if I’m right, there is a baseball sitting on top of a T-ball stand just begging to be smashed out of the park

That really is sad piece of analysis. If am right? Right on what? 

150Y? Are you kidding me dude. 

After 3 months of relentless dollar pressure, you are telling me that just when dollar is htting its upper resistance of 83, and ready to turn down, that YEN will now depreciate?


Your article does not make any logic behind it except saying that the japanese dont like it at 90. They want it at 150. They may want it at 1000 but that doesnt mean yen will go to 1000. 

So if u have logic behind ur call let me know. Please no debt of 200% and deflation stuff. That does not cut any ice with anyone. If those things had a bearing YEN should have been at 1000 by now.







Orly's picture

Sorry but you fellas are not seeing the big picture here.  madhedgefundtrader is exactly correct.  Let me tell you why:

At the nadir of the current economic cycle, the Federal Reserve and the global central banks colluded to reduce the significant exposure of foreign banks to assets valued in US dollars.  Foreigners had a LOT of assets valued in USD and their value was tanking rapidly in March of 2009.  Dr. Bernanke swapped a half-trillion in USD for other currencies, particularly the Euro.

Now, that money is being swapped back and repatriated.  In the interim, the USD got hammered while the EUR soared.  Now, the EUR is getting hammered while the yen soars.  In the rotation to come, the yen will get hammered as the dollar soars and the EUR equalises to the mean.  I am looking at about August for the yen to reach its maximum strength.

Then, it is truly a golf ball sitting on a T-Ball stand.  It will be the 4X trade of a lifetime.  Get very long USD/JPY.

You have to get over the notion that the USD is moving toward worthless and understand that the "value" of a dollar is relative to other currencies.  While Price Purchasing Parity may change according to the relative price of a pencil in the US and in Albania, that has little to do (in a very short term...) with relative 4X valuations between currencies.

1fortheroad's picture

Thanks Orly. Do you see the the EUR par with the USD anytime this year? I would like to dump half my dollars for reals sometime this year.


Rick64's picture

Good article MHFT, and good analysis Orly.

AnAnonymous's picture

Right. If this crisis is learning something, that's what you mentioned having no bearings.

The sea is rather agitated at present times. You know what happens when you measure the waves height at crest in a turmoiled sea? You get a dispersion larger around an average than in a flat sea.

Yen variation is nothing more than this. Times are troubled. Dont expect to witness a pearl river flow.

Matto's picture

Great info, especially the tip on the proshares inverse ETF - makes a retail position so much easier to maintain.


"When all of the angst about Greece resolves itself"

How would you see the Yen holding up if you believed the PIIGS were to continued their downward spiral? Could the Yen benefit in a flight to safety and hold its ground alongside the USD while the EUR slipped agaisnt both?

Thanks for any insights you can provide.




George the baby crusher's picture

You're the man.  Good call.

merehuman's picture

here in the USA looking at ourselves , i must say "we are all so Japanese"