Even Before Quake, Hedge Funds Wagered Against Japan

Hedge funds were leery of the Japanese economy even before last week's devastating earthquake laid waste to the island nation's infrastructure and marketplace.

Long before global markets plunged in the aftermath of the quake, hedge funds were betting against Japan due to the nation's skyrocketing debt, stagnant economy, and shrinking population, according to a Wall Street Journal report.

The epic disaster, which has sent global investors running for the hills, was the last thing Japan's teetering economy needed. But hedge funds smelled blood long before the March 11 tragedy, which has led to a death toll so far of 3,300 according to media reports.

From the WSJ:

Commonwealth Opportunity Capital, a $90 million hedge fund in Los Angeles, made a profit of several million dollars on Tokyo Electric on Monday, from an investment of less than $200,000. The annual cost of protecting $10 million of Tokyo Electric's debt jumped to $240,000 on Monday from $40,700 on Friday.

"Nobody wants bad things to happen to people," said Adam Fisher, who helps run Commonwealth Opportunity Capital. He said the firm has been betting against Japanese corporate bonds for two years. "But it shows how fragile that heavily levered nation is; there's very little margin for error."