Jeff Gundlach's Japan Trade Is Killing It, And He's Convinced It Has A Long Way To Go

jeff gundlach

Photo: CNBC

During a webcast on December 11, bond god Jeff Gundlach unveiled his latest hot trade: short the yen and buy the Japan’s Nikkei.Japan’s new leaders have committed to pursue aggressive monetary policy to stimulate the economy.

Gundlach believes the means currency debasement.  He also believes it means inflation, which is good for stocks

And for three months, Gundlach’s trade has been nothing but a huge success.

But Gundlach believes there’s a long way to go.

Today, the yen is trading at 96 to the dollar. Gundlach thinks it’s heading toward 100 and could go as high as 200.

The Nikkei is at around 12,300.  Gundlach thinks it’s on its way to 13,000, and he wouldn’t be surprised if it books a 3,000-point rally this year.

In a webcast last week, he reiterated his traded and laid out his case in 10 slides charts.

Japan has a tremendous amount of debt.

And its government is running a big deficit.

Meanwhile, the birthrate is falling and its population is ageing.

Surging energy imports have caused its trade balance to fall into a deficit.

Stocks are attractive because the dividend yield is higher than the interest income offered by Japanese bonds.

However, there has been a huge rally in Japanese stocks during a very short period.

Still, the Japanese stock market has deeply underperformed the US stock market.

It seems pretty clear that the Nikkei is undervalued relative to the S&P 500.

Japanese bonds are clearly the wrong place to park your money.

It's worth noting that consumer confidence has turned up sharply in the wake of government's new announced efforts to stimulate the economy.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.