Despite the Obama administration's dirty looks in its nemesis' general direction, Fox News is apparently good for something, sometimes. I noticed this story on FN about a major hedge fund's decision to start effectively shorting the living hell out of the Japanese yen by buying up long term options of high interest rates. I'd like to know how to do that too -- so if anyone knows how a regular investor can get in on that, then please add a comment to this article. (Note: I realize Fox did not break the story, but I had to give them some credit for the link. Note2: aaaaaand, it's gone. Link replaced with legit one on marketwatch.)
The closest thing I could find was the YCS UltraShort Yen ProShares ETF, which is exactly what it sounds like. I was thinking it would also be really excellent to refinance one or more of my houses in yen, so that a couple years down the road, my payments will hopefully halve in dollar terms. Unfortunately, I am not talented or connected enough to do that, and besides, the housing bubble has undoubtedly increased my LTV to levels that are repulsive to Japanese bankers' tastes. Those 2.9% APRs sure seem nice, though.
And that is exactly why I think the yen is overvalued. At 90 per dollar, with the Japanese interest rate pedal even more to the metal than American rates, the currency is about as propped up as it ever has been since the Asian currency crisis of the last decade. (Note: that link shows the USD vs the JPY, so lower means higher yen value.) I have no evidence to suggest that there are a lot of bad loans out in Japan, or that large Japanese businesses are in danger of failing. On the contrary, I think there are many healthy Japanese businesses that are already thriving in this recession, moreso than their American counterparts. But with the continued unprecedented growth of its current account surplus, Japan cannot sustain interest rates that are practically negative for much longer, and the yen will need to fall. In fact, we may see an intentional devaluation by the Japanese government, if they know what is good for them.
By the way, I stumbled upon the ticker symbol for YCS while reading this interesting article about the possible return of the ill-fated yen carry trade. If enough people jump on this bandwagon, then you can expect another bubble to form, which as we all know, is the best time to get into investing. :)
In case you're wondering what the hell I am talking about, it might make more sense when I point out that I just finished this book by Paul Krugman, which was recommended to me by Phoenician Trader last month. I became inspired to look for currencies that, during this "resurgence" from the 2008 recession, seem to meet the characteristics of the vulnerable economies described in that book.
As a side note, never do a GIS on Japanese words while using Google's "Line Drawing" option.