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Carry Trades Continue to Drive Yen Lower

Wednesday, 11 April 2007 21:36:25 GMT

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Written by Kathy Lien, Chief Strategist
Demand for carry trades continues to be one of the most predominant themes in the currency markets with traders driving EUR/JPY to a fresh all time high and AUD/JPY to a new 10 year high.  The Yen has sold off significantly over the past month and is showing no signs of stopping.  The market may be underestimating the risks that the upcoming G7 meeting poses.  No one expects the G7 to criticize the Japanese for allowing their currency to weaken so significantly so quickly, but we are sure that there will be many sideline discussions about it.  If any of these comments are caught by the press, we could see a rebound in the Yen.  Japanese domestic capital goods price index is due for release tonight.  Inflation is expected to tick higher, but it will not be enough to shift the BoJ’s stance. 
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