With the Carry trade from Japan, how come there have not been any reported losses from them when everyone else is getting tagged? My gut says they are hiding losses out of the Japanese sense of pride. NO WAY can you be a lender to the rest of the world for carry's, and not get caught up in the web. Stay tuned......
Good point. In '88 I was trading at Shearson (as it was then) and wanted to short the Japs but head of trading wouldn't let me - he saved my hide then. Said it was a totally false market and they were up to no good. And sure enough it went up and up while the rest of the world crashed. The polite Japs said they had a new economic paradigm and understood economics in a superior way to the West. When it cracked it pulled down a string of Prime Ministers as it became clear the government had been buying falling stocks to support the market. It worked until they could carry it no longer and the rest is history - 40,000 to 8,000. Wonder what their clever story will be this time?
Wondering if the Jap government could even bailout their institutions. Doesn't take alot of imagination to play out how they could be completely insolvent in bad debt. I bet this is the next hammer to fall.
jap banks financing carry trade is not at risk even if wall street went bankrupt. All carry trades are done by standard trade contracts. Jap banks just get the interest.
WTF??? They are lending money at a cheap interest rate. Are you saying they will get 100% of their money back from whoever they leant to?
What the article doesn't say in its risk statement is that there is also risk in whatever you invested in, seperate from the currency exposure. In their example, the jap bank loans at cheap rate and borrower takes into another country and invests it in a higher yeilding bond. The part they don't show is what if that higher yielding bond was in subprime? No way these banks are not indirectly invested in bad debt, and will not get paid back on probably a sizable amount.
Yes. Wall street banks have obligation for their carry trade debt even if they file chapter 11. Japan banks will be 1st tier priority to get paid. No one would lend so much cheap yen if there is great risk of default. We are not stupid.
It doesn't matter what kind of bond or borrower do with borrowed fund. Repayment is obligation, period. Standard carry trade contract is little chance of defaulting.