April 7th 2013: Japan declares war on its own currency!

Does everyone hate their currency?  It certainly seems that way - at least in governments around the world.  The citizens that elect the governments might say otherwise, but I digress...

This week, Japan unleashed the world's most aggressive easing policy (so far).  They plan on DOUBLING their money supply from 135T YEN to 270T YEN(!) by December 2014(!).  In GDP terms, this equates to a 1% increase every month this year and increases to 1.1% every month next year(!).  To put this in perspective, the US is currently expanding its already HUGE balance sheet by 0.54% every month.  In short, Japan has just announced a 2-year war on its own currency and it won't quit until it achieves 2% inflation.  This is big news for Japan and currency markets, in general.

So, how could you play it?  Well, you certainly could go short the yen.  Either in the FX market or by an ETF like YCS (just be aware of the tax complications).

Another option is with a currency-hedged Japan ETF like DXJ.  This has been a popular trade already this year - especially with hedge funds.  Last week, we had a shakeout in DXJ which quickly retraced and closed higher after news from Japan about their new anti-Yen policy.  My take is that governments are bigger than hedge funds and this already crowded trade can get even more crowded with the government behind the move.

Let's go to the chart.  I already noted the shakeout which set-up the bottom edge of a nice box.  We reversed sharply on the news and had follow-through the next day to close up and out of the box.  In an uptrending market, upside box breaks act as continuation patterns and target a box length move to come.  That equates to a price target of $47.85 where I would lock in some gains and let the rest run with a stop.

For more of my charts and to see a disclaimer, please check out my public chart list at stockcharts.com:
http://stockcharts.com/public/1109955

Here's the chart: