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Japan And The Yen Carry Trade

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There's been much talk on here about the ending of Japan's flooding of the money markets over the last few years. It has been argued that the end of this money flooding has precipitated the flight from equities recently towards bonds/the dollar/cash et al.

Is there any concrete evidence of this?

What will the further effects of this be? Will credit be tightened as American banks don't have so much money to lend?

I'm more interested in the "evidence" angle. How do we know this change is having an effect already?

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I have posted many times on the Yen carry phenomonen over the last year. the evidence is out there but it lies just beyond the headlines. I posted an article on bloomberg last week.

the Japan money is out there....


`Japan Money'

Now, there are nine such funds, sponsored by asset- management units of Nomura Holdings Inc., Merrill Lynch & Co., HSBC Holdings Plc and other financial institutions.

Just before last week's decline, these yen-denominated funds had the equivalent of $6 billion in Indian assets under management. Put another way, Japanese mutual funds accounted for more than 31 percent of the net overseas investment in India since September 2004.

And then there are Japanese pension funds and hedge funds, which have also pumped up their holdings of Indian equities in the past 18 months or so, though their investments aren't covered in these statistics.

``It is no exaggeration to say that `Japan Money,' or Japanese investors' confidence in the Indian economy, is boosting the Sensex,'' Japan's embassy in India said in a January 2006 promotional brochure.

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Not sure whether it was here or another site, but someone posted a link to an article recently claiming that the Japanese had sucked out a couple of hundred billion dollars of liquidity since March... that has to have knock-on effects on speculators.

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