Merk Goes Long Yen; Still Sees Currency Becoming Worthless Later

Axel Merk, president and founder of Merk Investments LLC, is betting the Federal Reserve’s first interest-rate increase in almost a decade will drive the yen up against the dollar in the near term, even as he says the Japanese currency will eventually become worthless.

“Our increasingly pessimistic outlook on various markets suggests the yen might experience a period of outperformance in the near term,” Merk wrote in e-mail received on Dec. 14. “On December 14, 2015, Merk initiated a long position in the yen in the Merk Hard Currency Fund.”

The yen gained 1.2 percent this month as mounting expectations for Fed’s monetary tightening sparked risk aversion and exacerbated a slump in commodity prices, burnishing the currency’s allure as a haven. It has climbed against eight of the 10 developed-nation currencies this year, losing ground only versus the dollar and the Swiss franc.

The Bank of Japan has refrained from adding stimulus after expanding its already unprecedented asset purchases in October 2014, while the European Central Bank introduced massive easing of its own in January and expanded it this month. The BOJ maintained its view that the central bank’s 2 percent inflation target will be reached in the latter half of the six-month period to March 2017.

Merk closed on Dec. 9 a bet against Japan’s currency, receiving 121.82 yen per dollar after it initiated the short on Nov. 20, 2012, by selling it at 81.67, according to the e-mail. The yen was at 121.66 as of 11:15 a.m. in Tokyo on Wednesday.

“We continue to have ‘infinity’ as our ultimate price target for dollar-yen, in other words we think the yen will eventually be worthless,” Merk wrote in the e-mail, without elaborating.

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