We often hear the question “isn’t this economic crisis becoming as bad as the Great Depression?” Economists can offer a variety of reassurances, but each of them is quite circumscribed:
Category Archives: Japan
The Unwinding of the Carry Trade Has Finally Hit Currencies
Why has the yen strengthened so much this week, even though the Japanese stock market has plummeted? The financial media have largely got this one right: the answer is unwinding of the carry trade, and the associated flight to quality, which means flight to yen and dollar (cash and treasury bills).
This was to be expected. It is an unseemly tooting of ones’ own horn, but — earlier this year I wrote in an article in the Milken Institute Review (vol. 10, no. 1, pages 38-45)
“The traditional pattern is most clear with the carry from the yen to the euro: it has been predictably profitable for the last five years, and this will predictably end soon, as the yen reverses its depreciation against the euro.”