How do investors execute the carry trade? Moreover, how does an investor borrow from a japanese bank? Thanks
About 10 years ago, I saw on tv that Japanese banks were offering money for zero percentage rate. At that time, John Templeton claimed that he borrowed many millions of dollars worth of yen but he didn't go into details and the interviewer never asked him. Good thread. I hope you get an answer.
By the way, why don't American home speculators borrow money at almost zero rate in yen instead of struggling under high dollar rates? Would expect the innovative mortgage lenders to have come up with this idea too.
GaveKal Research has written some on that in a forum http://gavekal.com/forum3/default.aspx?f=2&m=332 See the post explaining that the actual borrowing does not have to be "in Japan".
Sure they would. But since the yen has come down, borrowing it should be popular. And as desperate borrowers don't care about interest rate risk, why should they care about currency risk either?
Its very simple. Borrow from the Japanese in Yen for very little interest, then convert it over to US dollars and place it in another money making instrument. Here is a good example. Money is borrowed in Yen at little interest, then converted to dollars and then invested into treasury instruments here in the US (bills, notes, bond) at a higher rate of interest. Zero risk. So if I borrowed 100 million dollars in yen for very little interest and then placed it in a money market account over here in the US for 5%. 5 million dollars for free and no risk. Oh dont forget we have to give the tax man some of that income. . . There are other ways to play it, but that is very simple example.