Yen Falls on Risk Hungry Markets

Japanese yen restarted its falling against other world currencies today (even against the dropping dollar) as the risk hungry investors begin to reenter carry trades. While the Nikkei 225 index gained a little more than 1 percent — first rising day after four consecutive losing days, Yen lost more than 1 percent of its value to the high-yielding currencies.
Among highest gainers against JPY today are the New Zealand dollar and Australian dollar. After the global volatility index dropped slightly yesterday and Japanese stock market showed some growth today, Forex carry traders decided to short on yen to profit from the current outstanding interest rates difference. Aussie has the interest rate at 8.25% and the kiwi’s interest rate is 6.75%, making these two currencies a no-brainer as the long currency for the short yen’s 0.50%.
The question remains though if this is a start of a long term tendency or one of the final correction waves before a further yen appreciation and the complete abandonment of the carry trade, as the markets have been seeing it since 2001. As it often happens in the financial markets, the answer will be revealed in the days to come. If Bank of Japan will oppose the Japanese yen appreciation, as they said they are going to, carry trade may see another start.

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