CARRY TRADE SHIFTS from US Dollar to Yen: India Forex Advisors

In our earlier report dated 17th November 2012, we had mentioned that the dollar carry trade is likely to unwind soon. We had also said that as the nations like UK, Euro zone and Japan are adopting the near-zero policy rates, we can see Carry Trade shifting from US dollar to some other currencies like Japanese yen making the dollar to rebound again against JPY. Time and again we have mentioned the targets of Japanese Yen to hit 90 soon which has recently been achieved.

In continuation of the above ..

“The yen has depreciated by more than 18% against the US dollar since October, 2012. The recent weakness in the Japanese yen is caused by the comments from the BOJ governor, Shirakawa as he said combating deflation will be their first priority.

As promised, the Prime Minister of Japan has put so much pressure on the central bank that it had to take some important decisions at its two day policy meet this month. On 21st-22nd Jan, the BOJ announced open-ended asset purchases and adopted a 2 percent inflation target at its two day policy meeting. The BOJ will buy about 13 trillion yen ($145 billion) in assets per month from January 2014, including about 2 trillion yen in Japanese government bonds and about 10 trillion yen in treasury bills.
This step will boost money supply of yen thereby creating demand side inflation in its economy which is the need of the hour. Asset purchases program will continue to depreciate yen, and ultimately boost its exports.

The currency which is already overheated, hit the levels of $91.00 after the policy announcement. It is now trading near its 2 ? year low against the US dollar. Here onwards, we expect it to hit the level of 95.00 per dollar, indicating excessive easing in Yen and the carry trade shifting to Yen from the US dollar as mentioned above.

(Source: Corporate Communications, India Forex Advisors Pvt Ltd)