Carry trades and Japan’s summer bonus season

Discussion in 'Forex' started by ASusilovic, Jun 24, 2008.

  1. Yen carry traders are back with a vengeance and the Japanese currency is looking increasingly dismal, extending its creeping decline on Tuesday to around Y108 to the dollar - a four-month low- in late afternoon Asian trade. This time around, Bloomberg notes what you might call the “summer bonus effect” in Japan, reporting that the yen fell Tuesday to an 11-month low against the euro of Y168.18 on speculation Japanese investors will use summer bonuses to buy overseas assets offering higher yields than at home.

    Another factor weighing on the yen is the push by Japanese finance companies to raise more than Y1,000bn ($9.2bn) for funds investing abroad by June 30, according to Bloomberg data.

    Ashraf Laidi, chief forex analyst at CMC Markets, cites negative preliminary Q2 figures for the influential quarterly tankan survey on Japanese business sentiment. Despite uncertainty in Japan, however, Laidi believes the yen may garner support from the deterioration in US banks.
    Among the latest indicators are Monday’s reports of job cuts on Wall Street - that Citigroup is expected to reduce 10 per cent of its investment banking unit and that Goldman will cut a similar percentage of jobs. Additional indications that bank executives have encountered unexpected resistance from investors in their quest for to raise capital may also weigh on overall market sentiment and limit any dollar gains beyond Y108.20, notes Laidi.

    The US data releases of the next two days may drive the dollar-yen rate as high as Y108.35-40 but the onset of market reaction to an FOMC statement “that is increasingly perceived to have shut the door on further easing could prove negative for market sentiment,” adds Laidi, who sticks by his projected interim support of Y107.50, backed by Y107.20 and Y106.75.

    Wednesday’’s FOMC decision, meanwhile, is expected to keep rates unchanged at 2.00 per cent, with a statement that would express worsening inflationary conditions and an alertness towards weakening economic growth.

    As long as the Fed continues to defy the economic and market conditions by focusing on increased inflation, markets will continue to respond negatively, to the extent of further eroding major equity indices and worsening the pricing of credit derivatives.

    Expect another roller coaster period for the yen in months to come, however. Tohru Sasaki, JPMorgan’s often prescient forex strategist in Tokyo, expects yen strengthening later in the year. Watch, he says, for a possible change to tax rules on retained earnings abroad that might encourage Japanese corporates to repatriate many trillions of yen from off-shore operations to Japan.


    http://ftalphaville.ft.com/blog/2008/06/24/14018/carry-trades-and-japans-summer-bonus-season/

    Carry trade is dead ! Definitely dead !

    :D :D :D