Yen Carry Trade Unwinds:
The Other End of the Collapse
Aug. 1, 2007 (EIRNS)The Lyndon LaRouche Political Action Committee (LPAC)issued the following release today.
The yen carry trade, the borrowing from Japanese banks at 0.5% interest rates which has fed the speculative bubble, is unwinding. The rise in the value of the yen with respect to most other currencies is effectively increasing the interest rate to the point that this source of cheap liquidity is drying up.
LaRouche has described the collapse of the yen carry trade, and the meltdown of the U.S. mortgage markets as the two bookends between which the speculators are caught. People can't afford to pay the high-interest rate mortgages they were suckered into, and the speculators can't get access to easy money to cover their losses.
"View all of this in the context of a wild gambling casino," LaRouche said today. "You talk about sober bankers. There isn't a sober banker in a carload anymore."
The rise in the yen began last week when western speculators, caught with losses on the sub-prime market and in the hedge funds, scrambled to cash in their bets made with borrowed yen, buying yen to pay back their yen loans. This drove up the yen, causing further losses to yen borrowers, and the spiral began.
Today, with equity markets falling sharply around the world, and the yen continuing to rise in value against all major currencies, the "unwind" of the carry trade continued.
Beyond the rising yen, the Japanese appear ready to raise their interest rate from 0.5%, possibly this month, further squeezing the carry traders.