Asset deflation and the Yen carry trade

November 30th, 2008 | by admin |

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Many people have heard the term ‘carry trade’ but don’t understand the mechanics of its operation. This strategy has been the primary strategy of many hedge funds in recent years. Since the current financial crisis emerged this has resulted in a rapid shift in interest rate differentials. Many who depended on the reliability of the carry trade have found that the mechanics and leverage associated with this play is no longer viable. This is resulting in an unwinding of the Yen carry trade as capital gets repatriated back to the original source country. This is just one reason why the Yen has risen rapidly over the last several months.

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