Wednesday, November 21, 2007

The Yen Carry Trade Is Unwinding

From Forbes:

“The yen continued to climb, reaching its highest level against the dollar for more than two years as sub-prime worries weighed on equity markets, causing investors to pull out of the risky carry trade.

Equity markets in Asia fell sharply overnight, and European bourses followed them down prompted by fears of slowing US economic growth, and record oil prices. This gave the yen a huge boost as it dented the carry trade -- a risky strategy where they sell the low-yielding yen to invest in high-yielding ones elsewhere.”

From Reuters:

“'There's an overwhelming sense of malaise in the market, which fears the U.S. economy is slowing considerably and the Fed will have to cut rates in December,’ said Boris Schlossberg, senior strategist at in New York. ‘That's driving prices into the ground and will lead to further reductions in yen carry trades.’”

From Bloomburg:

“'Credit concerns are hammering the Dow and we've headed down with the stocks,' said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Wellington. 'People are cutting carry' trades.”

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