Last week, Shizuka Kamei, Japan's Financial Affairs Minister, called upon the Bank of Japan to prevent deflation by monetizing government debt.
Monetizing government debt simply means buying government bonds with money created out of thin air.
Every government that's done this, from the Weiner Republic to modern day Zimbabwe, has gotten the same result: rapid devaluation of the currency.
But this isn't going to be an unwanted side-effect: This is precisely what the government wants.
In a draft by 130 lawmakers from the ruling Democratic Party of Japan, the government called for an inflation rate of above 2% and an exchange rate of ¥120 to the dollar. That's a 30.4% devaluation from the current exchange rate of 92.1.
The Bank of Japan has so far resisted this push, but as with central bank everywhere, resistance to government demands only lasts so long.
The bank doesn't even have to give into the government's demands for the currency to crash. All it will take is for the Bank of Japan to seen to consider accommodating the government for a massive flow of cash out of the yen. This will result in an immediate and steep devaluation of the currency.
With the right currency options, you can get over 100:1 leverage on the Japanese yen all the way out to January 2011 at a pretty decent price. A 30% devaluation can easily net you a 1,000% return on these options.
Even a more realistic 10% devaluation should at least double your money in seven months.
Alternatively, you can invest in 12 month
US treasuries at 0.38%, roll them forward for the next 182 years, and double
your money risk-free. Personally, I see
the put options as the lower risk bet right now!
Cheers,
Peter.
