Wednesday, July 04, 2007

Is Yen Carrying Trade Less Prevalent?

Collapse of yen carry trade in October 1998. Looking at the Japanese balance of payments data, about ¥16 trillion or $130 billion were lent to foreigners in 1997. However, the 1997/98 financial crises caused a massive pullback in bank loans.

Now, signs of Japanese investors being the driving force for yen carry trade is becoming less prevalent. Foreign portfolio investment by Japanese investors eroded since early 2006, while Japanese funds held in foreign currencies and foreign bank deposits remained small. And with weak net lending by Japanese banks to foreigners in 2006, we can deduce that if the Japanese investors are believed to be the driving force behind the yen carry trade, they have now become less active since 2006.


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