Saturday, Feb 10, 2007
Concern about the source of cheap money
MSN: G7 warns markets against yen-shrinking bets
The G7 industrial powers, under pressure to address a decline of the yen, warned investors on Saturday that they could get burnt betting in one direction when Japan's economy was continuing to strengthen. European Central Bank President Jean-Claude Trichet added a layer of warning against the practice of borrowing vast amounts in low-yield currencies such as the yen to reinvest for a profit elsewhere -- carry trades, as they are called.
Posted by uncle chris @ 09:19 PM (151 views) Add Comment
2 Comments
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1. Retired Banker said...
It was said more than 20 years ago that Japan had a 1st World economy sheltering behind 3rd World protective tariff walls.
Attempts to change this problem have largely failed, and rather than rectify fundamental faults in their economy, the Japanese
have resorted to near zero interest rates for the Yen. The resultant carry-trade has created massive and potentially disastrous
asset bubbles in other countries.
It is astonishing that central banks elsewhere have just sat back and allowed this to happen.
2. japanese uncle said...
Many insiders in Japan believe the BoJ maintains near-zero IR as they are simply dictated by those very people who make billions out of Carry Trade.