JPY Strengthened by Unwinding Carry Trades
Posted on 20. Nov, 2008 by admin in JPY Economic News, Japanese Yen, Japanese Yen Currency
The Japanese currency recovered lost terrain in the last two days and rallied against the USD and EUR as continuing uncertainty over the U.S. government’s response to the financial crisis continues favoring the Yen by lowering the value of JPY-funded carry trades.
The low Japanese interest rate helped hold the value of the JPY lower than other currencies as traders used the JPY to fund the purchase of higher yielding assets. However, with global interest rates being slashed, the value of these carry trades have declined and traders have been unfolding them in exchange for more safe-haven investments.
In a recent data release by the Japanese Ministry of Finance, Japan’s trade balance figure indicated a deficit of 63.9 billion Yen in October. The numbers reinforced worries that the consequent fall in exports for October may push the economy deeper into recession. Japan’s trade balance registered its first effective deficit in nearly 26 years in August because high Oil prices pushed up import costs while overseas demand for Japanese-made goods weakened due to the spreading financial crisis.
