dimanche 3 février 2008

Carry Trade Gains Favor

It's been rough sailing for the Yen carry trade of late; the technique had been sagging in popularity due to the credit crunch and the associated trend towards risk aversion. Over the last few weeks, however, the Yen has fallen, which is to say the Yen Carry Trade is making a comeback. First came the announcement that the world's leading Central Banks would be injecting hundreds of billions of dollars in the banking system, in order to ease growing liquidity concerns. Next, the Bank of Japan hinted that it would hold rates at .5%, the lowest in the industrialized world. Finally, a continued surge in commodity prices virtually ensures that countries rich in natural resources, such as Canada and Australia, remain viable "targets" for carry traders. Overall, the story remains focused around volatility. In fact, one investment bank discovered an inverse correlation between the S&P 500 and the Japanese Yen. In other words, the appetite for risk appears closely correlated with the strength of global capital markets and the popularity of the Yen carry trade. Bloomberg News reports:
Over the last fortnight, that odd correlation with equities has broken down...Instead the fundamental factors behind carry trades have come to the fore again. Investors are paying attention to Japan's economy.
Read More: The resources to carry on

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