Yen Carry Trade Unwinding Continues
Following Crucial Japanese Election
July 30, 2007 (EIRNS)The Lyndon LaRouche Political Action Committee (LPAC) issued the following release today.
The unwinding of the yen carry trade continued unabated Monday morning, unperterbed thus far by the trouncing Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) took in Sunday's election. Final results in the upper house election released Monday morning show the LDP-led coalition lost 30 seats, leaving them with only 103 seats out of 242. Abe has insisted he will not resign, but only reshuffle his cabinet (see "The Great Unwind")
The Australian and New Zealand currencies (both major targets of speculators who borrow cheap yen at low rates, and buy bonds in countries with high rates) continued falling, losing 4.1% and 6.1% respectively over the past days, as speculators run for cover from the collapsing global credit markets by cashing in their carry trade loans.
Bank of Japan Governor Toshihiko Fukui has stated several times that it is time to raise Japan's 0.5% interest rate and thus stop the carry trade, but has postponed the decision repeatedly. Lyndon LaRouche on June 1 advised Fukui to take the move immediately, saying that stalling would only make the global bubble that much worse. Fukui has been under political pressure from the Cheney-friendly government to leave the rates alone. The defeat of Abe's party this past Sunday may create the conditions for the Bank of Japan to take action against the carry trade.