June 3, 2010 – The Yen Short is Back in Play

Featured Trades: (YCS)
ProShares Ultra Short Yen ETF

1) The Yen Short is Back in Play. The surprise resignation last night of Japanese Prime Minister, Yukio Hatoyama, has suddenly thrust my yen short back into the limelight. Coming in on a landslide only eight months ago, the hapless leader of the left of center Democratic Party of Japan (DPJ) couldn't help but stumble over his own feet. In the end, he was done in by his failure to deliver on a key campaign promise and close the US Marine Corps base at Futenma in Okinawa, which took his approval rating down to a subterranean 17%. There was never a chance that the Americans were going to depart. A US military presence there is guaranteed by the US-Japan Security Treaty, and has recently become more crucial in the face of a saber rattling North Korea and a militarily ascendant China. Not only is the base the headquarters of the Third Marine Division (my Dad's), the US took 50,000 casualties taking the island in 1945 after an epic 82 day battle, and they are not about to give it up lightly. The interesting play here is that Hatoyama's expected replacement, finance Minister Naoko Kan, has been very vocal in his support of a weak yen policy. The yen has already backed off two full handles on the news, boosting the ProShares Ultra Short Yen ETF (YCS) along the way. With the long-term demise of Japan a sure thing for me, I knew the yen had to resume its down turn, once a global risk reduction and carry trade unwinds get out of the way.