A perfect Friday read from Reuters!
- For more than two decades, investors lost their shirts in Japan. In a trade that became known as a “widowmaker”, they sold short Japanese government bonds with their tiny yields, yet suffered as long-term rates crept ever lower and bond prices rose.
- Today, taking a long position in Japan’s currency is similarly threatening to shorten the lifespans of investors in the Land of the Rising Sun.
- Over the past three years, the yen has fallen by around 50% against the U.S. dollar. But there are good reasons that painful bet may pay off sooner.
Reuters canvas a stack of reasons the yen is weak but settle on the obvious:
- Over the past few years a large gap has opened up between short-term interest rates in the United States and Japan. The Fed Funds Rate stands at 5.5% while the Bank of Japan’s policy rate is a measly 0.1%. Japanese retail investors have sold yen and bought dollars to pick up the extra yield. At the same time, they have enjoyed large capital gains – in yen terms – as the currency weakened.
Here is the link – a good read.
Sheese, a JPY/USD chart. Turn your screens upside down!
This article was written by Eamonn Sheridan at www.forexlive.com. Source