Monday, Nov 12, 2007
That would scare those who have already taken carry trade money out of Japan, forcing them to reverse course, unwind their trades
ft.com: Insight: Forget the falling dollar but fear a rising yen
If you like rising stocks, you do not want to see a rising yen. If the Bank of Japan envisions Japan’s economy as adequately strong and suddenly changes policy, increasing interest rates materially – pushing the yen up – it would kill the carry trade.
That would scare those who have already taken carry trade money out of Japan, forcing them to reverse course, unwind their trades, sell stocks, and flood the money back into Japan. In the process, global stocks would suffer, as would the high-yielding countries’ currencies relative to the yen.
With the correlation this high, do not fear a weak dollar; fear a strong yen. Any material sign of Bank of Japan tightening would be very bearish.
Posted by chris @ 11:18 PM (159 views) Add Comment
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