Japanese housewives getting roasted...

Discussion in 'Forex' started by ASusilovic, Aug 16, 2007.

  1. I guess a couple japanese housewives lost their spending money for the rest of the year :D
  2. japanese housewives

    mmmmmm.................. :D
  3. ‘Mrs Watanabe’ leads the pack as carry traders dash for the exit

    So what is Mrs Watanabe up to? Amid snowballing predictions of the death of the yen carry trade, the Japanese currency is surging as high-yield currencies such as the NZ and Australian dollars slide.The yen briefly hit Y115.71 to the dollar on Thursday in Asia, nearly a full yen above its value in New York on Wednesday and above Y116 for the first time in five months, as Bloomberg reported that stock-market losses prompted investors to exit holdings of higher-yielding assets funded by loans in Japan.

    Japan’s currency also climbed to the highest in more than four months against the euro and the dollar as traders exited so-called carry trades amid a global rout in equities. The yen rose to Y80.26 against New Zealand’s dollar at 2pm in Tokyo from Y82.78 late in New York yesterday, a 9.6 per cent rally this week, the most since October 1998. It rose to Y93.70 versus Australia’s dollar from Y95.62, added Bloomberg.

    The southern hemisphere currencies had been favourites for the carry trade, with interest rates as much as 7.75 percentage points higher than in Japan.

    Against the US dollar, the yen rose to Y116.01 from Y116.61 and reached Y115.71, the strongest since March 8, on Thursday. It climbed as high as Y155.01 per euro, the strongest since March 19, before trading at Y155.71, from Y156.76 on Wednesday, and could well advance to Y115 against the dollar and 154 per euro in one week, Masafumi Yamamoto, an economist at Nikko Citigroup in Tokyo and a former Bank of Japan trader, told Bloomberg.

    FT Alphaville has been banging on for some time about the carry trade and the role - or not, as the case may be - of the ubiquitous “Mrs Watanabe”, the archetypal Japanese housewife investor who, supposedly fed up with Japan’s pathetically low interest rates, is on a semi-permanent hunt for yield. We wondered whether she existed, in terms of being a force behind the carry trade.

    Regardless of who or what is behind the yen’s surge in recent days, now that turmoil on credit markets has spread to other asset classes, currency investors of all types are scrambling to reduce speculative trades and the carry trade appears to be unravelling, reports the FT’s currency correspondent Peter Garnham.

    “All of a sudden, the carry trade is frightening and a big sell - what a difference a few weeks make,” Richard Wiltshire, at IG Markets, told the FT.

    Some analysts say the scale of the correction in the yen has now reached levels that have raised fears of the liquidation of larger, longer term positions.The gloomiest of these analysts worry the yen could appreciate on a scale last seen in 1998, when the near collapse of LTCM, the hedge fund, sparked an unwinding of yen-funded carry trades and drove the dollar from Y130 to Y112 in two days.

    Most traders say such a move is highly unlikely given the extent of unwinding seen so far. But markets remain cautious.

    “Investors are extremely nervous holding anything that has above-average yield,” Adam Cole at RBC Capital Markets tells Garnham. “The overarching theme is one of risk-aversion and that should hurt high-yielding currencies and help low-yielders.”

    Indeed, high-yielding currencies have been worst hit as investors have raced to take risk off the table.

    Among leading currencies, the yen’s rally means it now stands higher against everything but the euro and Australian dollar on the year. Some analysts expect that trend to continue.

    Hans Redeker, at BNP Paribas, says that higher yielding currencies are going to come under severe selling pressure against the yen.

    “They are going to fall through the floor,” he says. “There is still a majority in the market that thinks that this is a correction and that dips are buying opportunities. I oppose that view.”

    Analysts say hedge fund activity could be a prime driver of yen strength in coming weeks, notes Garnham. “If hedge funds face heavy redemptions in that time because of the current turmoil, carry trades will be unwound”, he adds.

    Mr Redeker says that, if markets were functioning properly, these redemptions would not be a problem. But given the prevailing market conditions, the only way for funds to get liquidity could be through asset sales: “The next few weeks are going to be crucial,” he told the FT.

    As well as leveraged funds, Japanese retail investors have been active in the yen carry trade as they have poured money abroad in an attempt to take advantage of the higher yields on offer outside Japan, notes Garnham. During the early part of the recent carry trade shake-out in late July, “Mrs Watanabe” was still happy to use any appreciation in the yen as a chance to sell it, he says.

    However, Derek Halpenny, at Bank of Tokyo-Mitsubishi UFJ, tells Garnham that the scale of the moves now being witnessed may be attracting the attention of Japanese retail investors, who may not continue their strategy of buying higher yielding currencies on dips against the yen in current market conditions. Data from the Tokyo Financial Exchange suggest a change is occurring, he adds.

    In the last 10 trading days, “Mrs Watanabe” has cut net long euro/yen positions on seven occasions while position liquidation in the NZ dollar against the yen has matched declines in the currency pair.

    “The evidence of margin traders buying on dips is diminishing,” says Mr Halpenny. “Fear and panic could prompt further position liquidation, which would mean a test of the year-to-date low in dollar/yen of Y115.16 set in early May is imminent.”
  4. We are now at the 2/27 levels in yen where terrified hedge fund children can no longer sustain life.

    Die boys. Let's have a few thousand collapse.

  5. AUDJPY -5.4% overnight. Looks like margin calls and forced selling in many many accounts with no bids at all.
  6. wow, look at yen fly :eek:
  7. Did I say -5.4%??? Make that -7%

    Forced liquidations. At 10x leverage many many forex accounts were wiped out over the last 5 days in this 15% downdraft in AUD + NZD.

    Poor housewives :p
  8. Heh...holy shit. This is insane. I woke up and my AUD/JPY short is in 5 digits!!
  9. OMFW :eek: :eek:

    Day Of The Locust for Hedge Funds.

    Carry trade death is here.
    #10     Aug 16, 2007