Hedging With Zero Coupon Bonds from The Concepts and Practice of Mathematical Finance by Mark Joshi

In section 2.5 he describes an example of arbitrage-free pricing (attached below). I have a pretty solid understanding of how we arrived at $$K' = K\frac{1+d}{1+r}$$, but I got a little lost when he mentioned the alternative rate $$L$$.

If $$L$$ is greater than $$K$$ do we buy or sell yen, and what does he mean by hedging the forward contracts using bonds? I'm very new to quantitative finance and I don't quite understand the steps a firm would take to generate a profit by exploiting this opportunity.