A recent headline in The Japan Times read "Japan Inc. Unsure If Yen's Recent Downtrend Will Last," which characterizes the nervousness about the country's chosen path to prosperity. While there is no disputing the benefits derived by a trading nation such as Japan, when it weakens its currency, there is also little argument that this trend runs counter to what is generally indicative of a strong economy.
It triggers the age-old debate over how much of a good thing is too much, and as the aforementioned article discusses, some manufacturers are already showing signs that they are reluctant to count on it happening. Investors, however are a different breed, and simply see a country with a new government and a central bank willing to go down that path and they pounce.
"If it [Nikkei 225] goes below its 200-day moving average, use that as an exit strategy" Lydon says in the attached video, where he names the Wisdom Tree Japan Hedged Equity (DXJ) ETF as his favorite way top play the country.
"The idea is, with the Nikkei up 20%, the DXJ is also hedged against the yen falling, which is down 14% during that same time, so you're short the yen as well," he explains, adding that he is also encouraged by the fact that Japan is also willing to raise taxes, something he takes as a sign of confidence.
"They're making big, big bets that they're going to have a global economic turnaround," he says.
While some have argued that the Nikkei rally might be getting old at this point, Lydon is quick to remind us that even with the rebound, the Japanese market is still 70% below its all-time high.