The collapse of the Japanese government bond market has long been the holy grail of the hedge fund community. Unfortunately, it has remained just that for nearly 20 years, much talked about, unattainable, and some would say imaginary.

During the early eighties, I took the entire pension fund of the Foreign Correspondents’ Club of Japan out of US dollar bonds and put it into JGB’s, then yielding 10%, catching a decade long plunge in yields, and earning the eternal gratitude of the staff there. Even today, I am showered with free drinks and lunches when I visit Tokyo. After the 1990 stock market crash, JGB’s rocketed on a flight to safety bid, and the ten year eventually reached an unimaginable yield of only 0.46%.

For the last several years, we have traded in a 1.20% to 1.90% range. Every wave of government stimulus spending brought hopes of an imminent collapse in bond prices and rocketing yields. But with Japan about to enter its third “lost decade,” the Japanese government has delivered a seemingly limitless ability to disappoint, with one failed economic policy following another. The country’s gun shy institutional investors never bought it, and the end result was a soaring national debt, a moribund economy, and 1,000 bridges to nowhere. Just one of these, the Seto Ohashi Bridge connecting Honshu with Shikoku, is 8 miles long and cost $7 billion. Hedge fund guru, Julian Robertson, annually wrote a nine figure check to the JGB market for years, anticipating a rate spike which never appeared.

However, the day of reckoning for the JGB market may at last be coming. The savings rate has dropped from 20% during my time there, to a spendthrift 3%, because real falling standards of living leave a lot less money for the piggy bank. The national debt has rocketed to 200% of GDP, and 100% when you net out government agencies buying each other’s securities. Japan has the world’s worst demographic outlook. Unfunded pension liabilities are exploding. Other than great cars and video games, what does Japan really have to offer the world these days but a carry currency? That's not much to support a population of 130 million, a third of whom are about to enter retirement. I’m not saying Armageddon is tomorrow. But the big hedge funds, like David Einhorn’s Greenlight Capital,  are already starting to dog pile in. And if JGB’s do go down the crapper, can the yen be far behind?

Unfortunately, there is no easy way for retail investors to get involved here. There isn’t JGB ETF, or its mirror image short, although there will be soon. Institutional investors can short through futures markets in Osaka and Singapore, or go through the more tedious process of borrowing paper and selling it in the open market. Shorting the Japanese currency, though, is a piece of cake; with the ultra short yen ETF (YCS) offering a leveraged 200% bet that the yen will plunge.

For more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com .