JAPAN WARNS ON CARRY TRADE RISK
June 27th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Woh.
New Zealand dollar holders: If you’ve got ’em, consider spending ’em.
Becky and I are adding to our “investment” portfolio by acquiring gold, guns and nappies. Your results may vary, batteries not included.
It doesn’t make any sense to buy New Zealand dollars at these levels. We’re spending down our cash-on-hand and turning the change that’s left (after our bills and expenses) into hard assets. While the financial press is finally waking up to the importance of the carry trade to New Zealand, I don’t think there’s any way to really understand the implications of what a yen tightening would mean for the global system.
Any disturbance in global liquidity and… Well, good luck guys.
Via: Daily Times:
Japanese Finance Minister Koji Omi stepped up his rhetoric on the weak yen on Tuesday by warning against the risks of markets making one-way bets, an apparent reference to carry trades.
Omi’s comments, which echoed those made at recent Group of Seven meetings on carry trades — borrowing a low-yielding currency to buy higher-return assets such as the New Zealand dollar — prompted the yen to jump against the dollar and euro.
At the same time, South Korean and New Zealand foreign exchange officials said an unwinding of yen carry trades was a big threat to international financial markets and countries affected needed to deal with the issue in a “pre-emptive†manner.
Related: BullionVault
Of course, there are some of us who hold NZD because that’s what we’re paid in.
A collapsing NZD, while it would be good for our export sector, will generally be Bad News for the rest of us. Think petrol prices are high now? We could be seeing over $2.00/L. Prices of anything needing transportation or with an imported component will rise.
If your gap between earning and spending is slim (or negative!), now is the time to budget for harder times.