Our position in the Currency Shares Japanese Yen Trust (FXY) March, 2016 $89-$92 in-the-money vertical bear put spread expired over the weekend at it's maximum potential profit point.

You earned a 15.4% profit on the trade in only 16 trading days, or $1,540 on 38 contracts. It’s better than a poke in the eye with a sharp stick. Well done!

If you bought the ProShares Ultra Short Yen ETF (YCS) outright, keep it. This is the best entry point in a year. We are only just getting started on the downside for the yen, and the upside for the YCS.

To remind you why you hated the yen so much you sold it short, here are the fundamentals. I’m sure we’ll be visiting the yen quite a lot in the future.

1) With the world’s structurally weakest major economy, Japan is certain to be the last country to raise interest rates. Interest rate differentials between countries are the single greatest driver of foreign exchange rates. That means the yen is taking the downtown express.

2) This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets. So “RISK ON” means more yen selling, a lot.

3) Japan has the world’s worst demographic outlook that assures its problems will only get worse. They’re just not making enough Japanese any more. Countries that are not minting new consumers in large numbers tend to have poor economies and weak currencies.

4) The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With gross debt well over a nosebleed 270% of GDP, or 160% when you net out inter agency crossholdings, Japan is at the top of the list.

5) The Japanese ten-year bond market, with a yield AT AN ABSOLUTELY EYE-POPPING -0.08%, is a disaster waiting to happen. It makes US Treasury bonds look generous by comparison at 1.70%. No yield support here whatsoever.

6) You have two willing co-conspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country’s beleaguered exporters and revive the economy.

When the big turn inevitably comes, we’re going from the current ¥111 to ¥125, then ¥130, then ¥150. That works out to a price of $150 for the (YCS), which last traded at $75.35. But it might take a few years to get there.

If you think this is extreme, let me remind you that when I first went to Japan in the early seventies, the yen was trading at ¥305, and had just been revalued from the Peace Treaty Dodge line rate of ¥360.

To me the ¥111.00 I see on my screen today is unbelievably expensive.

Here are the specific prices you need to close this position:

long 38 March, 2016 (FXY) $92 puts at……………$5.32

short 38 March, 2016 (FXY) $89 puts at..……..….$2.32
Net Proceeds:………….………………………….....$3.00

Profit at expiration: $3.00 - $2.60 = $0.40

(38 X 100 X $0.40 ) = $1,540 or 15.4% profit on the position.

Its All Over for the Yen