Friday, March 02, 2007

What is the Yen Carry Trade?

This article explains everything you need to know about one of the factors that made the market decline this week.
A carry trade occurs when a speculator borrows in one currency and
trades in another. Few markets have been riper for carry traders than Japan,
because of a depressed yen and near-zero borrowing costs. This condition has
been in place for years, a result of nearly two decades of recession in Japan.
To spur economic growth, the Japanese central bank has kept its prime lending
rate at essentially zero.

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