Question Japanese int. rate & carry trade

Quote from Happy Hopping:

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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Japanese minister of finance has hinted it may be in multiples of trillions of USD.
 
Quote from ByLoSellHi:

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!
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Keep in mind BLSH (ah what a symbol, lol) that these strats aren't micro. IOW's a 5yr carry has twenty points of cushion. It's just a de facto short ATM 5yr call on the Yen at a premium of 20. Not much different than selling Mch 2012 ES. If there was such an animal it would be at a price today of like 1800. Would you assume the S&P to be under that level in 5 years? Hard to say eh? But it does give one a great deal of breathing room.
 
According to a currency specialist interviewed by Bloomberg yesterday, the japanese fiscal year ends in March and JPN pulls their currency back in every year at this time causing some unwinding of the carry trade. The yen should depreciate further toward the end of the month causing the carry trade to resume back to normal.
 
If a hedge fund had borrowed yen to pay for something which gained 3% that year, for example, but the yen rose 5%, would they have to disclose the current loss taking into account the exchange rate difference, or could they just say they gained 2.5% from the spread since they haven't closed the position yet, and say nothing of their unrealized potential loss?
 
Quote from FourZebra:

If a hedge fund had borrowed yen to pay for something which gained 3% that year, for example, but the yen rose 5%, would they have to disclose the current loss taking into account the exchange rate difference, or could they just say they gained 2.5% from the spread since they haven't closed the position yet, and say nothing of their unrealized potential loss?
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They would be using mark to market accounting and would report the unrealized loss as though it were realized.
 
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