Turning Japanese – Trading USD/JPY

I’m going  to back up a little bit, and give you some history on the trade  – as well a quick outline of the fundamental drivers.

With rumor of the possible re-election of Shinzo Abe as Japan’s new Prime Minister in Oct of 2012, and his proposed plans to aggressively weaken the Japanese Yen – JPY sold off in spectacular fashion. Going down in history as one of the most dramatic “forex events of 2012” JPY’s slide ( simply seen through the symbol “FXY” if that works for you ) continued through to mid March, and likely will resume in relatively short order.

Fundamentally speaking the dynamics surrounding Japan’s foray into the “monetary easing business” and the U.S Fed’s plans to “print their way out of debt” are very different – and well worth pointing out.

Bottom Line – Japan’s public debt is predominantly domestically owned (95% is owned by Japan’s own citizens) while the U.S owes more than 50% of its debt to foreigners. Japan’s printing will have little ramifications (globally speaking) so…essentially they can print forever – managing  this domestically, with almost no risk of default.

This in itself provides an extremely solid “fundamental foundation” for trade considerations LONG USD/JPY, as both currencies are aggressively devalued – the question really becomes “which can go down more?”

Well…..Japan ( with consideration of its domestically owned debt, and high level of savings ) could seriously keep interest low FOREVER and continue to print – while inevitably, the U.S will be forced to raise. This puts JPY at the bottom of the totem pole “rates wise” and essentially solidifies it’s place as the funding currency for Carry Trade activity.

Needless to say……Uncle Ben has had more than a couple monkey wrenches thrown his way – in his quest for a weaker dollar….all be it Japan’s………….coming in paper form.