Understanding the Yen Carry Trade

Good stuff here from Mark Dow on understanding the Yen carry trade.  Precisely what you should be doing with your Saturday.

“This is the question I always fantasize an insightful CNBC interviewer will ask of his/her guest after the guest offhandedly mumbles something about ‘the yen carry trade’.

Odds are, though, it’ll never happen.

What is a carry trade and why is it so pervasively misunderstood?”

Read the whole piece in the link above.



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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • http://www.lostoutputclock.com Austerity Sucks

    I’ve always laughed at people who still call yen shorts a “carry trade” — the dollar and euro and pound are just as good ponies to ride if you want to try for an interest arb play with, say, AUD or NZD…

  • Rober Laden

    The end of the article says that there are still carry trades in the credit market due to steep yield curves.

    In the bad old days, when banks were still supposed to be prudent, borrowing short term and lending long term (or investing long term) was called “funding mismatch”.

    It was one of those problem areas that banks and other financial institutions were supposed to avoid, in order not to have those problems bankrupt the bank when interest rates rose.

  • LRM

    So it is not filling a suitcase with Yen then?

  • http://www.highgreely.com jldasch

    I think he’s trying to nicely say that once people with PhD’s in physics got into finance it was game over for the carry trade.

  • jt26

    Good article. He makes a good distinction at the end where the good old carry trades were created by governments using interest rates to manipulate up/down their exchange rates (many youngens will ask, “there were countries that wanted to manipulate their currencies UP?”. Yup.) These days it’s also a lot about asset purchases and capital controls (China). Japan is spurring the private sector to buy foreign assets on behalf of the government so they won’t be seen as currency manipulators; no carry trade, but a speculation to front-run the gov.

  • Andrew P

    So you short Yen and go long Italian and Spanish bonds. So many people are doing this that the yields on Italy and Spain are being driven down.

  • EconFan

    is there any ways for small-time beginners(to currency world) in the US to play these? i.e. are there ETFs, options etc that could be proxy for such positions?