How to Profit from Japan's Fall into Recession (TM, SNE, HIT, YCS, FXY, YCL, EWV)

The Japanese yen, along with Japanese stocks, fell on Thursday on news that the economy had fallen into a recession in the aftermath of the devastating earthquake and tsunami that struck northeastern Japan in March. The Japanese economy fell at annual rate of 3.7% during the first three months of 2011. The worse than expected drop was the second consecutive quarterly decline for the Japanese economy, meaning that it is now in recession. The Japanese economy is expected to continue its decline, as manufacturers like Toyota Motor Corporation TM, Sony Corporation SNE and Hitachi, Ltd. HIT have struggled to get back to their pre-disaster operating levels. Besides the structural damage caused by the twin disasters that struck Japan in March, the Japanese economy has been hit by energy supply shortages and spare parts supply problems. The ongoing emergency at the now infamous Fukushima Dai-ichi nuclear plant is well known and has also exposed fundamental problems throughout Japan's nuclear energy industry. For too long, the regulators who were tasked with overseeing the nuclear industry simply looked the other way when dealing with safety issues that were obviously quite serious. Although dealing with these issues as the economy falls further into recession isn't ideal, it needs to be done in order to avert worse disasters at Japanese nuclear power plants in the future. Earlier this month, Chubu Electric Power Co. announced that it had agreed to a request from Japanese Prime Minister Naoto Kan to shut down the company's Hamaoka nuclear power plant. Like the Fukushima Dai-ichi nuclear plant, the Hamaoka nuclear power plant is located close to the sea and is in an area that is likely to be hit by a magnitude 8.0 or higher earthquake within the next 30 years. The plant is being shutdown so that improvements can be made to the facility so that it will be better able to withstand a natural disaster in the future. The Japanese should be applauded for finally taking nuclear safety more seriously but the short term affect of having a reduced energy supply is sure to hurt the chances of an economic recovery happening in the near future. Although it started the day in positive territory, the Nikkei 225 index of Japanese stocks was down 41.26 points, or 0.43%, to 9,620.82 by the end of Thursday's trading session in Japan. There are plenty of ways to play Japan's recession and falling yen. The ProShares UltraShort Yen YCS is worth taking a look at if you think the Japanese yen will continue to fall. The Japanese have made no secret of their desire for a weaker yen in order to trade their way out of some of their economic problems. Investors who feel that the downward direction of the yen will reverse itself could opt for the CurrencyShares Japanese Yen Trust FXY. Especially optimistic investors might want to consider the ProShares Ultra Yen YCL, which seeks to provide daily investment results, before fees and expenses, that are double the daily performance of the Japanese yen against the U.S. dollar. Investors who feel that regardless of how the yen performs, Japan has a long way to go before its economy is able to recover could also opt for the ProShares UltraShort MSCI Japan ETF EWV. This ETF is worth a look considering Japan's economy has been under a dark cloud for nearly 20 years and that under the current circumstances a swift turn around is highly unlikely.