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Merrill: BoJ Rate Hike Meant to 'Scare the Pants off Carry Traders'

 
Asa
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02/22/2007 05:35 PM
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Merrill: BoJ Rate Hike Meant to 'Scare the Pants off Carry Traders'
Merrill: BoJ Rate Hike Meant to 'Scare the Pants off Carry Traders'

Despite the Bank of Japan’s (BoJ) decision on Wednesday to raise its benchmark interest rate by a quarter point to 0.5%, it would still take 139 years to double your money in a Japanese bank account, according to Merrill Lynch strategist Michael Hartnett.

He also points out that Vietnam’s equity market recently doubled in only 61 trading days.

In January, a record amount of money (440-billion Yen) flowed into international stock funds in Japan, while February appears to be on course for another record, Mr. Hartnett said, stressing Japan’s increasing importance as a source of buying for Asia and emerging market equities.

Until Japanese interest rates rise or local equity markets offer more competitive returns, this scenario is unlikely to change.

While Mr. Hartnett thinks it is unlikely that Japan’s central bank will crush the carry trade (a strategy where investors sell a currency with a relatively low interest rate and use the proceeds to buy a different currency with a higher interest rate), he does think the hike was meant to “scare the pants off carry-traders.”

But it didn’t, Mr. Hartnett said, which demonstrates that investors may choose risky assets like those in emerging markets, while believing the BoJ’s actions can do them no harm.

[link to japan.seekingalpha.com]
Anonymous Coward
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02/22/2007 06:03 PM
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Re: Merrill: BoJ Rate Hike Meant to 'Scare the Pants off Carry Traders'
the carry trade now sells yen to buy gold. started yesterday.

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