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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (76622)	12/26/2006 11:00:20 AM
From: jimmg	Read Replies (2) of 110194

<<<Japanese financial institutions are heavy into this trade too. They borrow in Yen and send it abroad to speculate. This create non-Yen securities which equals a giant sucking sound of money leaving Japan, and exploding money supply elsewhere. If the trade unwinds, they will have to cover and Japanese money supply would soar. This is interesting and maybe I don't understand it. When someone borrows in yen, they need to sell the yen and buy another currency right? You can't buy US stocks with yen. So it seems to me the transaction is borrow in yen, sell yen on the open market and buy another currency. This "opening trade" of the yen carry would seem to increase the yen money supply. The "closing trade" of the yen carry would be sell US stocks (assuming this is the target for now) for us dollar currency. Then buy yen and sell us dollar currency on the market. Then pay off the yen denominated debt. As the yen denominated debt is paid off, this would decrease yen money supply. Am I thinking through this incorrectly?

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