Shorting the Yen: Japan's Exports Collapsing

The incredible strength in the Japanese Yen (XJY) has been fueled by two massive forces; the ridiculously huge Yen Carry Trade unwind that was the result of the an uber leveraged global financial system and the safe haven bid. Perversely it was the reliability of the strength of the Yen as the carry trade was unwound that made the Yen an appealing save haven... fueling further strength.

The result of course has been the absolute destruction of the export dependent Japanese economy.

Consequently, the Yen will go cliff diving. The tricky part of course is the timing...

The Yen has come off quite a bit against the major currency pairs. Building a short position on strength with a longer term time frame would probably present the best risk reward profile.

Japan Exports Plummet 45.7%, Deficit Widens to Record (Update2): "Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.

The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.

Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.

“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.

Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.

The yen traded at 96.49 per dollar as of 10:49 a.m. in Tokyo from 96.72 before the report. The currency is near the lowest level against the dollar in three months as the weakening economy reduces its allure as a haven.

The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Nissan Motor Corp. and Toyota Motor Corp. This year, the currency has weakened 6.3 percent, offering some relief to exporters while indicating investors’ growing pessimism about Japan’s economic outlook."

See Japan's "Unimaginable" Contraction for more details.