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This is going to be great for the U.S economy: http://useconomy.about.com/od/glossary/g/yen_carry_trade.htm http://useconomy.about.com/od/glossary/g/yen_carry_
by narrator 11y ago
This is going to be great for the U.S economy:
http://useconomy.about.com/od/glossary/g/yen_carry_trade.htm http://useconomy.about.com/od/glossary/g/yen_carry_trade.htm
> Definition: The yen carry trade is when investors borrow yen at a low interest rate. They exchange it for U.S. dollars or any currency in a country that pays a high interest rate on its bonds. They receive a low-risk profit when they receive high interest on the money invested, but pay low interest on the money borrowed. The broker pays the difference into the account each day the trade is open
>The yen carry trade is alive and well in 2015, but not with the U.S. dollar. That ended in 2008 when the Federal Reserve dropped the Fed funds rate to near zero. It continued with high-yield currencies such as the Brazilian real, Australian dollar, and Turkish lira. For example, many forex traders borrow near-zero yen to buy Australian dollars which have a 4.5% return.
This is where all the money lent out is going to go, from the Japanese negative interest rate to the new slightly above zero U.S bond yield. Keeps the party going for a little while longer. Follow the money.
- jevgeni 11y agoThis is not that clear cut. Dollar will appreciate against the yen. This will be advantageous to imports from Japan and disadvantageous to U.S. exports. I can't speculate on the intensity though.
- narrator 11y agoThose yen loans will buy our bonds though. This will increase credit availability. The whole system runs on credit availability. The housing bubble should have made that clear.
- riskneural 11y agoCredit slushes around like crazy for years. These days it flows into an S&P trading near 20 P/E, negative government bond interest rates, corporate bond interest rates below historical default rates, reinsurance treaties and cat bonds trading below expected value, and what else? Demand needs to pick up with credit availability or it just leads to asset bubbles.
- narrator 11y agoHere we have Grand Poobah of Keynesian economics and Nobel Laureate Paul Krugman in 2002 calling for a Housing Bubble to replace the NASDAQ bubble: http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip... >To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. The American economy loves a good asset bubble.
- AlisdairO 11y agoThat's completely out of context. He's not suggesting that it's a good idea, he's discussing the Fed's motivations.
- marcosdumay 11y agoNormally, sudden financial movements are bad for all involved parties.