Yen rises on bets carry trade to evaporate on economic turmoil

October 27, 2008 by · Leave a Comment
Filed under: Currency News 

As the the carry-trade(borrow yen to purchase higher yielding assets) unwinds, the Yen has been strengthing at a profound level.  According to Bloomberg, the Yen is trading at a 13-year high against the U.S. dollar.  Near the bottom of this article, it mentions the Aussie Central Bank(ACB) has been conducting open market operations to purchase the Aussie Dollar to give it support after it has dropped over 30% in past months.


The yen rose to the strongest level versus the euro since May 2002 and traded near a 13-year high against the dollar as global economic turmoil encouraged investors to sell higher-yielding assets funded in Japan.

French Finance Minister Christine Lagarde said in an interview with Bloomberg News that the Group of Seven doesn’t plan to intervene to weaken the yen after the G-7 said in an unscheduled statement that excessive movements in the currency may threaten financial stability. The pound slid after an industry report showed U.K. house prices slumped.

“It’s a combination of unwinding carry positions and money going home to Japan and the U.S.,” said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. “It’s not an environment where one should be looking for return on capital, but for return of capital.”

The yen gained 1.5 percent to 117.21 per euro at 4:02 p.m. in New York, from 118.96 on Oct. 24, and reached 113.64, the strongest since May 2002. The yen climbed 0.8 percent to 93.58 per dollar from 94.32 at the end of last week, when it touched 90.93, the strongest since 1995. The euro fell as much as 2.3 percent to $1.2334, the weakest in 2 1/2 years, from $1.2623.

In the past month, Japan’s currency has increased 14 percent against the dollar, 33 percent versus the euro, 55 percent versus the Australian dollar and 44 percent against the New Zealand dollar on speculation investors will unwind carry trades, in which they get funds in countries with low borrowing costs and seek higher returns elsewhere.     

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