It might not be front-page news… but the Japanese yen is in the middle of a collapse.
This downturn has been dragging on for years. The currency hit its most recent peak in early 2021. And it has gone nowhere but down ever since.
All told, the currency has fallen 34% in three and a half years… a brutal decline for a major global currency.
But one sign tells us that a reversal could happen soon.
Sentiment is near its most bearish level on record. And as I’ll explain, the last time we saw pain like this, the yen took off on a multiyear rally…
Calling this a “currency collapse” is no exaggeration.
The yen has not only lost a third of its value… but it has also dropped to a three-decade-plus low in the process. Take a look…
The last time we saw these levels was in 1990… just as the 1980s Japanese bubble was beginning to burst. Plus, as the chart shows, the recent decline has been quick and severe.
Lots of folks are worrying the yen could fall much further from here. But that’s the wrong assumption to make right now…
You see, everyone believes the decline will continue. They’ve left this currency for dead. And that means sentiment is set up for a major reversal.
We can see this clearly by looking at the yen’s Commitment of Traders (“COT”) report…
This weekly report shows us what futures traders are doing with their money. When these traders all bet together on the same outcome, the opposite tends to happen. And right now, they’re betting against the yen at a wild pace…
The COT has fallen alongside the yen in recent months. It just hit its most negative reading since mid-2007. And as it turns out, that was also a darn good time to bet on a yen reversal…
The currency was falling back then as well. It was down nearly 20% in two and a half years. But once sentiment hit an extreme, the yen started to rally…
It moved higher in value for more than four years. The overall gain was 63% – a huge return for a major currency.
We could be on the cusp of a similar move right now. The yen has crashed in recent years. And now, futures traders are betting against it at crazy levels.
That means a reversal is likely. And if it ends up being a sustained rally, the yen is likely heading much higher than we’ve seen in years.
Most folks don’t expect a turnaround from this currency right now. But the contrarian bet is that we should see a much stronger yen in the months ahead.
Good investing,
Brett Eversole
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Source: Daily Wealth