Yen Carry Trade Over

• The Yen Carry trade refers to how investors have been borrowing in Japanese currency (at very low interest rates) and then using this money to invest oversees e.g. in US, Europe and emerging economies.
• This enabled investors to benefit from the difference between Japanese interest rates and other interest rates.
• As well as the Yen Carry Trade, Japanese savers used their extensive domestic savings to invest oversees and benefit from higher interest rates oversees.

However, the Yen Carry Trade is coming to an end with devasting effects for the global economy. The Yen Carry Trade is over because:

1. Global recession causing slower growth in Europe and US
2. Lower growth leads to lower interest rates, reducing the difference between Japanese and American rates.
3. Appreciation in the Yen. Appreciation in the Yen means it is risky to borrow in Japan and invest oversees as the appreciating Yen, will make it difficult to pay back your Yen Loans.
4. Currency uncertainty. The Yen Carry Trade requires stable exchange rates, but, this is not occuring with the financial crisis.
5. People want to sell their foreign assets and pay back their Japanese loans.
6. Japanese savers are returning their money to Japan.

The forecast for the Yen is for the Yen to keep appreciating.

• Effects of Yen Carry Trade being over