Hey Forex/Market Watcher-types: Why shouldn't I be shorting the yen?
Then yen has been riding the carry trade meltdown for some time now. And for some reason, it’s seen as a "safe" currency in times like this. But if you look at the fundamentals, Japan is in big trouble. So this crazy rise in the yen is starting to look like oil did in the first half of 2008: a speculative circle jerk without the fundamentals to back it up. Am I wrong? Is it too early yet to short? What do you think?
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Tagged with: big trouble • carry trade • circle jerk • market watcher • meltdown
Filed under: Trading Forex
Bad move. Japan has a currency rate of 0.10%. If you short JPY against another currency and that country/region drops their interest rate to stimulate their economy in a recession, JPY will go up. The same will happen if Japan increases its rate.
Regarding the five majors:
USD: 0.25%
JPY: 0.10%
EUR: 2.00%
CHF: 0.50%
GBP: 1.50%
You definitely would be at risk with the cross rates. I wouldn’t be surprised if the UK make a rate cut. The swiss franc is no good even with a 0.50% rate because it moves similar to the Euro and the European union has room for rate cuts.
Your only option for shortening the JPY is against the USD. With America wanting to improve employment and the housing market, I think the FOMC will leave the US rate at 0.25 for most of or all of 2009, but even then you’ve got to hope that Japan doesn’t raise their interest rate.
I’m more knowledgeable about the stock market, but I have traded the FX spot market before. If I was trading it now, I would be shorting the Pound against the USD. UK is in a recession and have more room for interest rate cuts. The US and Japan doesn’t.
I agree with you, but remember currencies trade against each other. Other economies are sucking too. I’ve been doing some quick GBP/JPY trades, but I need to see more clear technical signs of a breakdown in the Yen to short for a longer term trade.