Reply #28: No end in sight for yen carry craze [View All]

[54anickel]

http://www.reuters.com/article/reutersEdge/idUSL218404520070221

LONDON (Reuters) - High risk yen carry trades exploiting Japan's low interest rates are in no danger of losing their appeal as long as Japanese monetary policy remains predictable and financial market volatility stays low.

The BOJ raised rates to a decade high of 0.5 percent on Wednesday, saying it would tighten borrowing costs further but gradually.

Japan's rates are still the lowest in the industrialized world and the yen quickly erased initial gains to resume a broad decline, hitting a record low against the euro beyond 159.

Carry trades, where investors borrow in currencies with low interest rates and invest the proceeds in high yielding currencies, are seen by many as an unsustainable long-term strategy that can only thrive in a low-volatility environment with ample cheap money.

But investors seem eager to amass ever more yen-financed positions in higher yielding assets.

"We are again in a framework where carry trades work very well. As long as expectations of BOJ hikes remain moderate then shorting yen may be still in the market for some time," said Umberto Alvisi, currency strategist at Credit Suisse.

"There is fairly low volatility in the market. At a global macro level we are in an acceptable path of economic growth. It doesn't appear we have a big inflation or big growth issue." Continued...

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