Cheap as chips Yen

Many have noted the effect of the yen carry trade on the world's stock markets. It's a fairly simple strategy: borrow yen at give-away rates in Japan and put your free money at work elsewhere, raising inflation (asset prices) worldwide thanks to a profligate and gutless Bank of Japan. Guambat has mentioned it many times recently.

When this simple machine is at work fundamental market factors become irrelevant and the only way a market can go is up. Its effect was dramatically observed in the Australian market this week, and less so in the US market today.

In the Land of Oz, on Monday strong retail sales figures pretty much brought the majority of prognosticators around to believing the Austrlian Reserve Bank will raise rates sooner than later, causing the Aus stock market to tank and the Aussie Dollar to fly.

On Monday, the ASX200 SPI (analagous to the S&P500) lost over a hundred points at one point. On Tuesday, with no fundamental news to back it, the SPI rose back over a hundred points and then charged further upward well into new record territory. All on the back of cheapass yen. And bloody minded Japanese Central Bankers.

This is illustrated in the following two items, first, the obligatory thousand words, and then the picture worth another 1000 words.

By David McMahon
NEW YORK, April 3 (Reuters) - The yen dropped to a
one-month low versus the [US] dollar on Tuesday on expectations that
Japanese investors will resume selling the currency as they
park money overseas in the fiscal year just started.
Japanese mutual funds and corporations often repatriate
overseas profits before book closing at the end of March,
buoying the yen. Traders said that with the new fiscal year
under way, speculation was growing that these flows will
reverse and the yen come under renewed pressure as Japanese
investors resume purchases of higher-yielding overseas assets.
"With the fiscal year having finished, the repatriation
flows have dissipated, and now there's the expectation that
Japanese investors will resume overseas investments and selling
yen," said Camilla Sutton, currency strategist at Scotia
Capital in Toronto.
Mid afternoon in New York, the dollar was up 0.9 percent
at 118.85 yen while it was up 0.6 percent at 1.2225
Swiss francs . The euro was up 0.6 percent at 158.43 yen
, near a session high of 158.82, a level last seen on
Feb. 27 before investors rushed to buy back the Japanese
currency and unwind carry trades as global equity markets
tumbled.
The Australian dollar retreated from a decade high against
the [US] dollar [but not against the yen] ahead of an interest rate decision, with investors betting the Reserve Bank of Australia will hike rates to 6.5
percent. The pair traded down 0.6 percent at US$0.8115 .