Wednesday, Mar 19, 2008
The yen carry trade is a “cheap money” gambit that exploits the extraordinarily low borrowing rates available in Japan. It is notoriously hard to quantify but is understood to have supported a series of the asset bubbles around the world in the past few y
times: Deepening misery on Wall Street, prophesies of recession and the recent freefall of the dollar could set off a $300 billion (£148 billion) time bomb in the global yen carry trade, dealers are giving warning.
Japan's low interest rates, an anomaly in the financial world, result from Japanese central bank monetary policy, which has, Richard Jerram, the Macquarie economist, said, “defied orthodox economic thinking for more than 20 years”
Posted by chris @ 04:09 AM (182 views) Add Comment
2 Comments
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1. paul said...
Ironically, the Japanese economy had low rates because of a deflationary spiral in the aftermath of a credit boom in the 1990s.
How history repeats itself.
2. japanese uncle said...
This extraordinarily low IR was badly needed to feed the assets bubbles in the UK/US while securing unfair profits for the Japanese banks all at the cost of savers in the country. Ostensibly such unrealistic level of IR was meant to be a stimulus to the economy, while in reality it worked as severe deterrence as the nation, generally with much higher propensity to save than other economies, stopped consumption unless absolutely needed, obviously because of the ‘feel bad’ factor caused by adverse wealth effect, (excepting a limited number of very wealthy consumers, though). As bubbles in the US/UK go on boosting, risk monies rushed to USD/GBP, further boosting their exchange rates, providing carry trade investors with lucrative double bonus ie higher returns as well as capital gain. But as is inevitably the case, those dreaming to become rich overnight will have to appreciate the truth of 'easy come easy go'. I wonder how many Kimono traders are at a loss gazing at their fingers badly burnt during the latest violent crash of the two currencies.