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Could the Big Yen Short Turn on a Dime?

Stocks in this article: FXY EWJ GLD

I don't have enough space here to offer an in-depth analysis of Japan's decline. Suffice it to say that such a prolonged, wide-ranging decline cannot be attributed primarily to a currency exchange rate. Nor can it be fixed with an exchange rate.

So here comes the kicker. The Japanese Ministry of Finance says the trade deficit for the first 20 days of January (provisional) is almost 1.2 trillion yen.

To put this in context, the record deficit was 1.56 trillion yen, set in January, 2012. The deficit was 640 billion yen last December.

And the latest number comes at least three months after the yen began its huge 20% decline, in late September.

Granted, an exchange rate takes time to work its way through the economy. But the latest number (for only 20 days) is almost double the entire month of December. November and December at least had the excuse of the mass boycott in China. What's your excuse, January?

Massive monetary easing and inflation in a trade-deficit economy laden with massive debt is a dangerous gamble. (The U.S. is an exception as long as the dollar remains the only real choice as the reserve currency). If the expected boost to the economy doesn't materialize soon, the devaluation based on optimism could quickly turn into further devaluation in the name of panic collapse. Look at Thailand in 1997.

Could Mr. Soros, who famously defeated the sovereigns of Great Britain and then Thailand, have been angling for a similar feat with Japan? It's a most intriguing possibility. If so, and if he succeeds, the $1.2 billion paper gain he has is only the tip of the iceberg.

I dare not predict the timing of this turn of events. But Japan Inc. needs to show some good trade numbers soon. Keep this in mind, and check iShares MSCI Japan (EWJ) and CurrencyShares Japan Yen Shares (FXY) once in a while, as you keep busy following the headlines. If/when it happens, it could easily be the biggest event since the 2008 crisis. And then everybody would say, "But of course, this makes perfect sense!"

At the time of publication the author had no positions in stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage..

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