A query from a money manager in St. Louis...

leads me to a brief and rather non-analytical "hand-waiving" discussion of the Yen:

OK, lets talk Japan. (if you want my quick and dirty answers, go to
the "So, to SUM UP" section)

First off, I have reams of data as well as anecdotal evidence that
seems to support a general "Japanese Investors exhibit herd-like
behavior greater than most other developed countries".

Secondly, we have to delve into the "Boys from Todai" to understand
how the MOF thinks (and even more importantly, how they wantus to
think they are thinking). Soros has said many times that the MOF is
one of, if not THE most sophisticated participant in the market, they
don't get pushed around and have earned their "widowmaker" reputation.

Now, I met deputy minister Iwata (again, a guy from Tokyo University,
aka "Todai") and he claims the MOF follows a neoclassical inflationary
expectations model developed by Wiksell way back near the turn of the
century. Now, do they really believe in Wiksell's formulae? NO.

JPN, like every other macro scenario, is an exercise in timing and
cyclical response to economic stimuli. Deflation is still a problem
until domestic demand can be stimulated. Then the damn will finally
break (and your position is helped by declining US $ denominated
assets) and the rate of increase in the capital account (opposite side
of the current account, reflecting desire to net save US financial
assets) in Japan will decrease. The Yen goes up. Big.

However, since domestic demand has to be stimulated, the MOF will
intervene in the currency markets (as they have always done). This is
why me and my partner are long some JPN indexes, etc. Fiscal policy
is the lynchpin over there (as in ANY soft currency economy...and of
our friends, ###### is the one of the only ones to really
understand modern soft currency economics). And we watch fiscal
policy as a greater predictor of long-term price levels than the
short-term interest rates in distant JPY futures contracts.

SO, to SUM UP:

They will not raise interest rates soon. They are scared to death of
continued deflation. (and now there may be a good chance of deflation

here, which will not help them...but that opinion is not shared by
anyone at the moment)

The carry trade piper will most certainly be paid, and in a way that
will blow away risk parameters. NZ's economy is the size of Michigan.
What happens when the carry trade into NZ's $ unravels and those
players are forced to re-purchase Yen?

So, for the time being, I think your Yen play is a good one...but I
personally am much more comfortable with JPY assets that are more
derivatives of the general economy rather than the blatant
manipulative practices of the MOF.