Steven Towns

Yen Carry Trade Not Over Yet

Pascal, thanks for providing us with a deeper look at the implications of the yen exchange rate and the carry trade. For the average non-Japanese investor I tend to agree with your statement that "for foreign investors capital gain appreciation in Japan is much more important than potential currency loss." In fact, I believe for longer-term Japan investors there is the dual benefit (assuming cap gains) of winning when the yen strengthens more permanently as the rate gap narrows with say the US$ and euro. I expect this narrowing to begin from as early as spring '07, standing by my prediction that a second rate hike will not happen this calendar year.

For those interested see Pascal's latest Japan Investment newsletter.