{"id":39023,"date":"2013-06-14T09:54:45","date_gmt":"2013-06-14T13:54:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39023"},"modified":"2013-06-14T09:54:45","modified_gmt":"2013-06-14T13:54:45","slug":"the-first-half-of-the-short-yen-long-japanese-equities-trade-is-still-on","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/06\/14\/the-first-half-of-the-short-yen-long-japanese-equities-trade-is-still-on\/","title":{"rendered":"The First Half of the Short Yen \/ Long Japanese Equities Trade is Still On"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Two weeks ago, I asked if the short yen \/ long Japanese stocks trade was over<\/a>.\u00a0\u00a0 It appears that, indeed, it is.<\/p>\n

The Nikkei crashed by over 6% on Thursday, pushing it well into bear market territory.\u00a0 It\u2019s now down by more than a quarter from its recent highs.<\/p>\n

And the yen?\u00a0 It has rallied and is now at a three-month high.<\/p>\n

What\u2019s going on here?\u00a0 Has the market lost faith in Abenomics?<\/p>\n

We shouldn\u2019t draw too hard of conclusions here.\u00a0 First and foremost, we have to remember that the Nikkei had doubled over the course of just half a year and that the yen had lost roughly a quarter of its value relative to the dollar over the same timeframe.\u00a0 Some of the \u201chot money\u201d that had pushed this trade to such extremes has been taken off the table.\u00a0 Traders had made a killing, and it was time to take profits.<\/p>\n

As for Abenomics, I don\u2019t think it is a case of the market losing faith in it because I don\u2019t believe that the Smart Money ever truly believed in it to begin with.\u00a0 \u201cSuccessfully\u201d igniting inflation risks destabilizing Japan\u2019s sleepy bond market\u2026which in turn risks turning the orderly decline of the yen into a hyperinflationary rout.\u00a0 No one in their right mind would want to be a long-term holder of Japanese equities given the risk of a credit market meltdown.\u00a0 Sure, Japanese equities are cheap.\u00a0 But they\u2019re not cheap enough for that kind of risk.<\/p>\n

The Smart Money saw a great opportunity for a short-term trade, and they took it.<\/p>\n

But what can we expect going forward?<\/p>\n

I expect a lot of volatile noise from the Japanese equities market that will be hard to play, long or short.\u00a0 But I believe the second half of the trade\u2014shorting the yen\u2014still has life left in it.<\/p>\n

The easiest way to short the yen is via the ETF market: the Proshares UltraShort Yen Fund ($<\/span>YCS<\/a>)<\/strong>.<\/p>\n

Be careful here.\u00a0 YCS has been in free fall since late May, and you don\u2019t want to catch a falling knife here.\u00a0 I would recommend starting small\u2014with, perhaps, 20% of the allocation you want to eventually have invested in this trade\u2014and average your way in over the course of the next several weeks.<\/p>\n

If I am right about Japan having a capital markets meltdown , the yen has a lot further to fall.<\/p>\n

Of course, the day of reckoning could be postponed due to coordinated central bank action, or I could simply be wrong. \u00a0A lot of very smart macro traders have bet big on a Japan blowup in recent years only to be disappointed. To play it safe, use something along the lines of a 10% stop loss.<\/p>\n

Disclosures: Sizemore Capital has no current position in any security mentioned. \u00a0 This article first appeared on TraderPlanet<\/a>.<\/p>\n

SUBSCRIBE\u00a0<\/b><\/a>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

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