The Japanese Yen will Fall in 2012, and Here’s How You Can Profit
Something is about to happen to the Japanese yen.
This currency is on the move.
As far as I’m concerned, there is a very definite way to profit from this move.
But it’s truly amazing how much real-world effect a currency can have on a company’s profits and its employees.
Currency is where the rubber meets the road.
Here’s the clue to what’s happening with the yen…
Toshihiro Nagahama, chief economist at Dai-Ichi Life Insurance Research Institute, recently noted: “No Japanese manufacturing company can make a profit at the yen’s current level around 75 to the dollar.”
I agree with him. The current value of the yen is the number-one hindrance to Japanese corporate growth, and that has far-reaching implications.
Why the Yen Must Fall
If you want statistical proof, just look at how the chart below shows that when the yen goes up Japanese stocks go down.
At the same time, when the yen heads higher against the dollar, Japanese goods become more expensive for Americans. And these goods are also expensive for Europeans with the EUR/JPY exchange rate so low.
Americans and Europeans alike have backed off of buying Japan’s goods simply because the exchange rate has gotten way out of whack.
The buck just doesn’t go as far as it used to in buying Japanese goods and neither does the euro.
It’s taken a big toll on huge Japanese exporters, like Sony, Toshiba, Mazda and NEC.
And if you think it’s not a threat, tell that to the 10,000 NEC workers, whose jobs will be axed shortly because of the slowdown in business brought on by the strong yen.
The Japanese currency has gained around 7% against the dollar over the past 12 months, alone – although it has been chipping away at Japanese corporate profits for at least three years.
There are other consequences.
For example, Sumco, which is a supplier to Sony and Toshiba, plans to cut 1,300 jobs.
Nippon Sheet Glass, which sells glass to Mazda Motor Corp, expects to make a ¥3 billion for the year to the end of March, and it said it will cut 3,500 jobs.
At the same time, Sony and Sharp are cutting in half their TV production at their biggest factories as they reduce inventory. Sony recently more than doubled its annual loss forecast to ¥220 billion.
NEC forecasts its third annual loss in four years and has been forced to cut 7,000 jobs in Japan and another 3,000 abroad, roughly about 8.6% of their workforce, because the yen’s strength is killing the demand for its handsets and wireless gear.
Japanese corporations are at a tight spot right now, and their desperation – as well as the impact on bottom line and jobs is a sign that the yen has to weaken in 2012.
Simply put: Japan’s corporate landscape can’t take more years of an ultra-strong yen.
We’re literally talking about a battle for the existence for the likes of Sony, Hitachi, Mazda, NEC, Canon, etc. – all of them household names in America.
For instance, whether the world’s largest camera producer can stay in business depends on what happens with the exchange rate.
Lately, the yen has traded sideways, and is now trading around the 76 to the dollar. I believe the Japanese central bank is supporting the USD/JPY pair there after their huge intervention last March.
And that’s where the investment opportunity lays.
USD/JPY Will End 2012 Higher for the First Time in Years
The Japanese government will not allow these great corporation and world-wide names to perish because of an exchange rate issue.
If they have to get more aggressive or if they have to get the other major central banks of the world to “gang up” on the yen… they’ll do it.
Will the USD/JPY exchange rate head higher tomorrow? I don’t know.
But I do know that it’s a good bet that it will rise significantly by the end of the year.
After all, these corporations are Japan’s largest employers – so it is also a political imperative.
The pressure is on the Japanese government, particularly its central bank… they must act or the Japan’s economy will be doomed.
There is a chance that the yen could turn around on its own. The fact that stock markets around the world are beginning to rebound could help the yen, which tends to prosper when the crap is hitting the fan elsewhere.
But if it doesn’t turn around on its own, look for the central bank to get more aggressive.
Either way, the yen must fall … and when it does, USD/JPY will turn around and head higher – and, for the savvy sovereign investor, that’s an opportunity to profit.
Have a nice day!
P.S. As the leaders of France and Germany yesterday stepped up pressure on Greece to accept the terms of the new €130 billion bailout, the European crisis cast its long shadow on Wall Street and other global markets. The dollar made gains against the euro, but it’s only a temporary respite. As the fed’s attack on the greenback continues unabated, with interest rates stuck near-zero until at least well into 2014, the dollar continues its day-by-day death by a thousand cuts. However, there is a way to put those sinking dollars to work in an overlooked part of the currency market that’s persistently dishing out substantial returns. It may be a tough and unpredictable market out there, but every investor needs a trump card he can pull from his sleeve in times like these. To learn the secret of how to grab double-digit gains, click here …