# Yen Carry Trade



## tech/a (7 March 2007)

Wayne found this for you.

Thought it explained the implications well.
http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm


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## wayneL (7 March 2007)

*Re: Yen Carry Trade.*



			
				tech/a said:
			
		

> Wayne found this for you.
> 
> Thought it explained the implications well.
> http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm



Thanks Tech

I am using the yen as my leading indicator at the moment because of the carry trade bizo. 

Yen has been down against other currencies this week.

That retracement starting Monday was the clue to go for some long swingers in the SM. It's the combination to the lock right now IMO...until "they" change it again.  

Cheers


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## money tree (7 March 2007)

""Even if the Bank of Japan holds rates steady - as it is widely expected to do - a rise in the yen itself could spark a self-sustaining unwinding of the carry trade," he added."

I doubt that. He is suggesting funds will exit the carry trade simply because the yen is rising. If that were true, the reverse would also have to be true, ie funds would sell the yen simply because it was falling. Funds enter the carry trade for the interest, not for capital growth.

""This is not a risky trade I would continue if I was an investor. Any trigger can cause a sudden movement at this point," Roubini said."

Risky trade? Curious. If you get it wrong, you simply wait. Interest is massive and it doesnt take long to recover capital losses. Compare this to other trades where it costs you interest to stay in the position. Sure its volatile at the moment, and theres the risk, but thats across the board. 

Bottom line is, the carry trade wont end while there is free money to be made in an interest rate arbitrage.


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## YOUNG_TRADER (13 March 2007)

Here's a balanced view on the unwinding of the "big bad" yen carry trade

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=490EB159-17A4-1130-F50D172B3FD391DD


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## Kimosabi (14 March 2007)

Marcus Padley on Inside Business had the impact of the Yen Carry Trade unwinding described to him this way:

"If you don't know what the yen carry trade is, let me describe it to you the way I had it described to me this week as the collapse having the same impact as Bruce Willis failing to stop that asteroid hitting the northern hemisphere."

http://www.abc.net.au/insidebusiness/content/2006/s1868731.htm


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## Freeballinginawetsuit (14 March 2007)

Worth posting YT, a balanced view wouldn't go astray as it gets noisy at times.




Carry Trade Fears “Grossly Exaggerated”

 FN Arena News - March 13 2007 

 By Greg Peel

As the dust settles over the risk-based correction we've just 
              experienced which many thought was overdue anyway, there is at 
               least consensus that the Chinese stock market collapse was in 
 itself insignificant – merely a little trigger for 
                  overstretched global markets. With that in mind the blame 
                  shifted to the unwinding of the yen carry trade, and this sent 
                  shivers down many a trader's spine.

             The market perception is that the world holds massive yen 
                  borrowings at low rates which have been invested in everything 
                  from gold to copper to Brazilian stock markets, New Zealand 
                  bonds and emerging corporate paper. These risk trades have 
                  fuelled global asset appreciation in the twenty-first century 
                  and crushed risk premiums to uncomfortably low levels. If this 
                  turns around, the world is going to hell in a handcart.
                  One estimate of the total stock of yen carry trades (there is 
                  no formal, reliable measure) from the Vice Minister for 
                  International Affairs of Japan's Ministry of Finance, Mr 
                  Watanabe, is about US$150 billion.

                Let's put that in perspective, says Morgan Stanley's 
                  London-based global economist Stephen Jen. In the first five 
                  days of the global correction, US$3 trillion in equity market 
                  capitalisation was wiped out. That's a bit of an overreaction 
                  if it was sparked by fear of US$150 billion being unwound. The 
                  global equity market capitalisation stands at around US$43 
                  trillion. On Mr Watanabe's numbers this means the yen carry 
                  trade equates to a mere 0.36% of world equity value.
                  "Blaming the unwinding of the ‘JPY carry trades' for causing 
                  havoc last week is almost as bad as blaming the sell-off on 
                  the Chinese equity markets", says Jen, "To me, what happened 
                  in the last two weeks was the result of excess leverage, 
                  extreme mis-pricing in some markets and investors having the 
                  same trades.  JPY shorts may have been a popular trade, but it 
                  is by no means a dominant position in the market, in my view". 
                  Another misconception, notes Jen, is that the yen carry trade 
                  is an activity only undertaken by hedge funds looking for the 
                  quick buck. However, the trade is "as much structural as 
                  cyclical".

                  What this means is that if the carry trade were only cyclical, 
                  the implication is that money borrowed in yen for investment 
                  in various risk instruments is done so simply on the basis of 
                  the interest rate differential. Borrow at under 1% and invest 
                  in, for example, Aussie bonds at over 6%. (The risk lies not 
                  in the Aussie bond itself, it lies in the potential for the 
                  currencies to shift).

                  But this perception discounts the massive savings of an aging 
                  Japanese population which is simply looking for a return on 
                  its retirement funds. Returns on overseas equities have far 
                  exceeded simple interest rate differentials. This is a 
                  "structural" trade, where investors are chasing capital 
                  appreciation more so than any interest rate "arbitrage".
                  Nevertheless, open interest at the International Monetary 
                  Market (futures exchange) in Chicago showed extremely high 
                  levels of short yen contracts (around 114,000 compared to the 
                  decade average of 30,000) which were then reduced by about 
                  half in the week of turmoil. This showed hedge funds in 
                  action, and explains the sudden jump in the yen against the US 
                  dollar. But at the same time, notes Jen, Japanese retail 
                  investors "have been remarkably calm". Japanese institutional 
                  investors were in fact net buyers of dollars, not net sellers.
                  The conclusion is thus (a) the "unwinding" of the yen carry 
                  trade was only carried out by rattled hedge funds with 
                  overextended risk positions and (b) the buyers of yen have 
                  been foreign institutions not local ones. In terms of cause 
                  and effect, the equity sell-off prompted the currency 
                  adjustment, not the other way around.

                  "With the very positive global economic outlook and abundant 
                  global liquidity, I see risk-taking recovering rapidly from 
                  the latest correction, though there should be better 
                  differentiation between assets than in the past" Jen 
                  concludes.  "In other words, this is a great opportunity for 
                  investors to ‘upgrade' their portfolios".​


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## nizar (14 March 2007)

Good article YT.

Can i just mention something why is there all this talk about the Yen "carry trade" just now when Jap rates have been low (close to 0%) for more than 10 years??


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## Uncle Festivus (4 August 2007)

Freeballinginawetsuit said:


> "With the very positive global economic outlook and abundant
> global liquidity, I see risk-taking recovering rapidly from
> the latest correction, though there should be better
> differentiation between assets than in the past" Jen
> ...




Some great advise 

There is an interesting recent correlation with advancement in Yen and major market corrections. Looks to have run out of steam again so maybe looking at a general rebound in markets around Tuesday/Wednesday perhaps. Just a theory, or am I looking at it wrong


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## tech/a (4 August 2007)

> to a mere 0.36% of world equity value.




Thats a---whats all the fuss about moment.

Would be interesting to see similar figures on subprime effect.
Is cheap credit REALLY affecting the whole of the worlds economies to the extent of whiping off TRILLIONS of Dollars.
How is this helping balance?
How does this "Correct" an imbalance.

I can see where more expensive money will effect growth but how much?

Any economist like to explain this to me?


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## wayneL (4 August 2007)

tech/a said:


> Thats a---whats all the fuss about moment.
> 
> Would be interesting to see similar figures on subprime effect.
> Is cheap credit REALLY affecting the whole of the worlds economies to the extent of whiping off TRILLIONS of Dollars.
> ...



It's not about expense of money now, it's about availability.

Corporate borrowers are being knocked back left, right, and center.

Watch the Cramer video to get an idea of the panic.


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## Uncle Festivus (17 August 2007)

Carry trade unwinding? Highest in 13 months, exporters starting to complain again, intervention by the Japanese CB any time now?


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## wayneL (29 August 2007)

The yen carry trade's @rse hairs are on fire again, taking the overseas indices down again... fwiw

Any adverse news from here and this market is toast.


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## wayneL (29 August 2007)

Oh, and the chart... JPY/USD so far this week


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## chops_a_must (29 August 2007)

wayneL said:


> The yen carry trade's @rse hairs are on fire again, taking the overseas indices down again... fwiw
> 
> Any adverse news from here and this market is toast.




Time to fire up that blog again I think WayneL lol!


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## wayneL (29 August 2007)

chops_a_must said:


> Time to fire up that blog again I think WayneL lol!



I've been bloody slack, eh?


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## chops_a_must (29 August 2007)

wayneL said:


> I've been bloody slack, eh?




Yeah, what's been wrong? Bear got yout tongue? :


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## Uncle Festivus (22 January 2008)

Mmmmm....... Yen goes up,  markets go down......


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