Yen: Risk appetite returning? Caveat emptor!
In today's South China Morning Post, we read that "The Japanese government might let a state-owned bank buy preferred and common shares in companies struggling to raise funds as the economy deteriorated, the Ministry of Trade proposed yesterday." in an adjoining article, we read that "...Japan launched a US$ 16.7 billion scheme to buy shares in firms whose future has been threatened by the financial crisis." My hunch is that both articles are referring to the same policy initiative.
Apparently, this announcement of intent spurred nearly a five percent gain in the Nikkei 225 - and the yen fell.
It fell because some risk-hungry punters placed more carry trades: they borrow yen, sell it (hence the yen tumble), and use the proceeds to buy instruments denominated in other currencies, e.g. high-yielders like the NZ$ and the Australian $. I ask: why should commodity prices rise when there is an ever-stronger excess supply of goods, what with rising unemployment?
Be skeptical: a few government policy moves, rising trade tension between the U.S. and China concerning her "undervalued" RMB, and a generally rotting world Economic Time™ suggest that the prudent investor stays conservative and does NOT place carry trades with the yen.
Not yet, at least. The fish is still flopping around on the hot cement sidewalk, so placing carry trades is really only for those subscribers who are smart traders....
