http://www.coyoteblog.com/coyote_blog/2009/02/score-one-for-unfettered-capitalism.html Dispatches from a Small Business Sun, 12 Feb 2012 15:59:49 +0000 hourly 1 http://wordpress.org/?v=3.2.1 http://www.coyoteblog.com/coyote_blog/2009/02/score-one-for-unfettered-capitalism.html/comment-page-1#comment-16777 bbartlog Mon, 16 Feb 2009 16:55:56 +0000 http://www.coyoteblog.com/?p=7166#comment-16777 Japan is also getting screwed now by the long-term blowback from their fifteenplus years of low interest rates. The yen carry trade, which was run profitably for many years, involved borrowing money from Japan's central bank (at zero or tiny interest), using those yen to buy dollars, and then investing the dollars in something that would give a return - money market funds or tbills. This made the yen cheap relative to the dollar, and helped Japan's huge export sector (even if it didn't really create a healthy economy for them). Over the past six months, the yen carry trade has been unwinding and the yen has risen 20% against the dollar. This masks the full extent of the yen's rise, since dollar has also been gaining against other currencies; the yen has risen 32% against the Euro since last July, for example. So at a time when we'd expect their exports to shrink anyway as part of a global slowdown, they're suddenly facing a 30% currency headwind as well. No wonder their GDP is cliffdiving. And there's no reason to think the yen is done rising yet, either. Japan is also getting screwed now by the long-term blowback from their fifteenplus years of low interest rates.
The yen carry trade, which was run profitably for many years, involved borrowing money from Japan’s central bank (at zero or tiny interest), using those yen to buy dollars, and then investing the dollars in something that would give a return – money market funds or tbills.
This made the yen cheap relative to the dollar, and helped Japan’s huge export sector (even if it didn’t really create a healthy economy for them).
Over the past six months, the yen carry trade has been unwinding and the yen has risen 20% against the dollar. This masks the full extent of the yen’s rise, since dollar has also been gaining against other currencies; the yen has risen 32% against the Euro since last July, for example.
So at a time when we’d expect their exports to shrink anyway as part of a global slowdown, they’re suddenly facing a 30% currency headwind as well. No wonder their GDP is cliffdiving. And there’s no reason to think the yen is done rising yet, either.

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