Question Japanese int. rate & carry trade

H

Happy Hopping

http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm

While the spread between interest rates in Japan and elsewhere around the world remains wide, investors are realizing now that the yen can move much more quickly even if the central bank doesn't raise rates very quickly - thereby destroying the profitability of the carry trade, Fearon said.

"Even if the Bank of Japan holds rates steady - as it is widely expected to do - a rise in the yen itself could spark a self-sustaining unwinding of the carry trade," he added.
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What does the above means when he said yen can move much more quickly?

Especially when Bank of Japan is not going to jack up the rate, what would causes yen to go up significantly?
 
Quote from Happy Hopping:
http://money.cnn.com/2007/03/05/markets/yen_carry/index.htm
Especially when Bank of Japan is not going to jack up the rate, what would causes yen to go up significantly?
More...
I hear a volume equaling 5% of Japans GDP is short the JPY in different variations of the carry trade. They buy real estate in eastern europe, stocks in india or US index futures with borrowed JPY. They have been doing this since years.

Now even if interest rates do not go up and for some reason people involved in this trade want to cover their short JPY positions it would spark a JPY rally since the volume is huge. Look what happened to the JPY in fall 1998 and May 2006.
 
Quote from Happy Hopping:
Especially when Bank of Japan is not going to jack up the rate, what would causes yen to go up significantly?
More...

When world wide market are collapsing and going to bear market; most Japanese have to pull back their funds back into Japan. It is time of unwinds of carry trade. The Yen will sky-rocketing.

Japanese funds is the major fuel of current world bull market. Aka carry trade.

All you have to do is look at the value of JPY/USD and stock market's indexes.
 
Watanabe added there were no statistics to gauge the size of carry trades, he estimated the size of yen carry trades to be several 10 trillions of yen, around half of what he said some market players estimate - $1 trillion.

Later comments were more specific: "It depends on the definition of the market - maybe 10-20 trillion (yen) but I don't know... we don't have statistics."

http://money.cnn.com/2007/03/01/news/international/bc.japan.economy.watanabe.reut/index.htm

THATS GREAT - THE VICE FIN MINISTER DOES NOT EVEN KNOW THE SIZE OF THE POSITION - ANOTHER OVERPAID POLITICIAN WHO DOES NOT KNOW HIS ARSE FROM HIS ELBOW
 
Quote from THE-BEAKER:

Later comments were more specific: "It depends on the definition of the market - maybe 10-20 trillion (yen) but I don't know... we don't have statistics."
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It great thing about carry trade is that you can inflate other markets and wouldn't see too much of inflation in your own market (Japan). Export your problem out; and they can't point finger at you; This is the game of size.
 
The problem is when those who borrowed at yen 117 or 120 to 1 USD see that the yen is now 114 or 109.

Their low interest rate just got decimated by the yen appreciation, and if the yen rises further, they're really screwed, especially if the risky asset they have the money leveraged to can't overcome the deficit.

Panic at the disco!
 
I forgot whether it's CNN or marketwatch who said that "Some economists estimate the total size could range from $200 billion to as high as $1 trillion." I am almost convinced it's CNN.

But even if it is $1 Trillion, what's 1 Trillion in a world market? Merrill Lynch portfolio is $2 Trillion, and that fig. is several yr. ago.

If they use Carry Trade's low interest to invest in US Treasury, then they are screw. If they use carry trade's low interest advantage to invest in US stock, then even at 0.5%, it's still very good return, so I don't see what the big panic is.

I suppose it's the unknown that people is fearing. I mean, the question the market should ask is: who are the fund managers who engage in carry trade, and what do they invest in, low or high risk?

If they invest in low risk w/ low interest gain, then what happened the other day is just a tip of the iceberg, Japan increase their int. rate on Feb. 22 to 0.5%, hey it doesn't take long does it, less than 2 weeks for everything to go down.
 
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