Three Ways to Profit as China Dumps Japanese Debt

As a veteran trader, I have a tendency to look past the day's top headlines. That's why a recent Bloomberg News story - which stated that China sold a net total of 769.2 billion yen ($9.24 billion) worth of Japanese debt in September - really caught my eye. By itself, this story probably wouldn't be a big deal. But this development is the start of an important new trend in the global currency markets. And the following three factors tell me that we should be taking a close look at why China has decided to dump Japanese debt. For instance: Given that the same thing happened in August, September marked the second straight month Beijing has sold more Japanese securities than it purchased. This marks the reversal of a seventh-month stretch of China being a net purchaser of Japanese debt. The two months of sales nearly wiped out the net surplus of 2.32 trillion yen ($27.86 billion) that China had amassed as a result of seven months of buying Japanese debt. Finally, the 2.02 trillion yen ($24.26 billion) worth of Japanese debt that China sold in August was China's single-largest monthly sale of Japan government bonds since 1995, when these statistics first started being recorded. While there are other conceivable explanations, my take is that China is definitely unloading its yen-denominated holdings, and shifting its investments elsewhere as part of a much bigger reallocation strategy. As investors, this is a trend that we need to track - and to react to. Let me explain.... To understand how to profit from this currency-market development, please read on...