Yen carry

Discussion in 'Wall St. News' started by annaland, Mar 14, 2007.

  1. Jaxon


    Nice article. Too bad the Bankok Post only keeps their articles online for one day! I had to dig pretty deep to find the article in a cached page. I would like to see the Fed do a study to determine to what extent low global rates (Primarily Yen, but also Euro) are responsible for keeping US Treasury rates unusually low. The market has developed convenient excuses to explain the negative yield curve, mainly that there is an implicit forecast of a recession and Fed rate cuts in the future, but the real reason could be that many investors actually find a 4.5% yield high relative to funding costs.

    Here is the article:
  2. Great article. One of the best on the topic I've read.

  3. Thanks for finding the article, I had no idea it would be hard to get to!

    This is what I think: if the yen is strengthening and the US is anticipating a rate cut then the yen carry will slow down drastically. Due to losses, markets are starting to sell off. Yen carry gets paid off, which strengthens the Yen further, and creates more selling off in the markets and more severe market declines. Once US rates are cut to balance the sell off, this causes more of a slow down in yen carry, again causing the markets to drop… cyclical behavior which will affect any market the Yen carry is related to. Currencies strengthen; investors and brokers take capital losses, leading to more selling. This will further cause other repercussions in the markets such as lack of liquidity, recessions and effects on commodities like gold and oil.
  4. razorack


    It is only a matter of time before the yen appreciates. But predicting when is a folly. Because you have had a very long trend down for over a decade this market will not turn on a dime- look at gold for example - it had been in decline for a long time
    Gold gave investors the heads up to its impending explosion upwards, in 99 but it took another 2 years to finally go on its current bull run. In the meantime the smart money including GS and JPM who were permabears toward gold had time to cover positions.

    Will they have time to cover their yen positions? Who knows. This time they might get caught out due to the extreme differential in asset valuations between japan and non japan, and the sheer speed that the hedge funds switch strategies and with the huge leverage that they have been utilizing.
    If a rapid shift out of US RE finds its way into Japan via repatriation and external investment, then not only is the carry trade over, but so is the major source of cheap credit that has been keeping the US RE market booming way beyond normal cyclical time constraints
  5. More interesting stuff from Reuters South Africa:

    "LONDON (Reuters) - The yen's broad rally against other major currencies paused on Thursday as a recovery in global stock markets made investors slightly more comfortable about yen-funded carry trades.

    U.S. producer prices, capital flows and factory data, all due for release later in the session, will be in focus given the recent rise in risk aversion was in part prompted by concerns about the health of the world's largest economy.

    Sharp falls in equity markets had quelled risk appetite and made currency investors less keen to borrow low-yielding currencies like the yen to fund investments in higher return units like sterling or the dollar.

    Now, a recovery in shares has prompted some to go back into carry trades, which still look attractive from a yield perspective -- Japanese rates are just 0.5 percent compared to 5.25 in Britain and 7.5 percent in New Zealand.

    "The main driver (for currencies) is not fundamental issues, it's really driven by risk aversion, the equity market performance," said Mitul Kotecha, head of FX strategy at Calyon.

    "The fact that yesterday we had a bit of a gain in U.S. equities, and a stronger performance in Asian equities overnight helps reduce risk aversion slightly and the yen has come under a bit of pressure as the volatility of carry trades continues."

    European stocks opened around 1 percent higher on Thursday, after similar scaled gains in Tokyo's Nikkei index overnight and gains on Wall Street on Wednesday.

    By 0840 GMT, the dollar was up 0.1 percent at 117.17 yen and the euro was steady at 154.81 yen.

    Sterling, which had been a key beneficiary of carry trades and has thus suffered more than some of the other currencies during their unwinding, stabilised at 226.51 yen.

    The euro ticked down to $1.3205.


    Euro zone February inflation data are due at 1000 GMT with the year-on-year rate expected to be confirmed at 1.8 percent.

    European Central Bank Governing Council member Klaus Liebscher said on Thursday that euro zone monetary policy remained relaxed given strong economic growth and that he saw inflationary risk rising towards the end of this year.

    Fellow Governing Council member Nicholas Garganas said the bank was determined to act promptly to monitor price stability.

    The ECB is expected to raise rates to 4 percent in coming months but has signalled that policy may be nearing its peak.

    Thursday features two central bank decisions, with the Norges Bank expected to raise rates to 4 percent and the Swiss National Bank seen hiking to 2.25 percent, both at 1300 GMT.

    In the U.S., February producer prices are due at 1230 GMT, followed by January net capital inflows numbers at 1300 GMT and the Philadelphia Fed's survey of March factory activity in the U.S. Mid-Atlantic region at 1600 GMT.

    Any signs of weakness in the data could boost expectations of a Federal Reserve rate cut later this year, and would probably lead to a fresh bout of risk aversion.

    "A combination of weak activity and high inflation data is probably the worst outcome for equities and related high beta markets such as emerging market currencies," BNP Paribas said in a research note.

    Investors will also be looking for any more news from U.S. subprime mortgage lenders, amid concern that trouble in that sector could spill out in to the wider housing market."