Thursday, June 16, 2011

Carry Trade Part.II

Since last few years, the carry trade is the most developed of the yen carry trade, however, note that they are also processed the Swiss franc.

For investors, the yen carry trade is interesting on two levels: firstly because of the difference in rates (the Bank of Japan lends at a rate of 0.25%, while investors can invest this money to rates above 5% in England and the United States), secondly because the yen's depreciation during the duration of the operation.

The situation faced today was introduced by Japan's economic policy. Following the crisis of the 2000s, Japan and the United States and Europe have dropped their rates sharply to avoid an economic slump. However, if the United States and Europe have been sharply reversed the trend, growth in Japan that has developed since then have been accompanied by a significant reduction of unemployment, low wage growth but to no inflationary pressures, the Bank of Japan was not forced to change its monetary policy and rates remained extremely low (0.25%). The yield spread, which has gradually opened up between the rates of Western central banks and the central bank has caused the Japanese yen carry trade phenomenon. The main actors are not taking advantage of that opportunity, the more comfortable it is artificially maintained by the Japanese central bank and no sign of change seems to appear.

However, significant risks facing the global economy. The current danger is that the carry trade is no longer limited to playing on differences in rates, but it greatly increases the global liquidity moving into the pockets present in economies with weak currencies to countries with high rates. The yen is borrowed in dollars, pounds sterling, Euros ... then invested in operations with high leverage.


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