The mystery behind the appreciating Yen

Alright, before i start talking about forex ( foreign exchange a.k.a currency market ), lets set some technical terms right first. When we say a currency is appreciating, it means the currency have strengthen in the sense of 1 Sing dollar can buy LESSER of what you used to be able to buy. For example, last time 1 Sing can buy 68 yen. Now 1 Sing can only buy 65yen, which is much lesser. So its said that Yen is appreciating in relative terms to SG dollars.

So whats the ultimate mystery? Its this term called "yen carry trade". So a brief overview: Japan's economy was in slumps for the past decade after the housing bubble burst, stock market crashed in the late 80s. So the monetary authorities ( Bank of Japan ) cutted interest rate to a mere 0.5% lately to boost the slump economy and to encourage lending and borrowing.

So.. Alot of smart investors begin to borrow in YEN and speculate in shares ; speculate foreign exchange market like Australian Aussies, New Zealand Kiwis to earn the relative high interest rate of 6-8%; given a low borrowing cost of yen to earn such a huge spread of profit. So "yen carry trade" simply means borrowing in yen to boost financial activities.

So the recent appreciation has alot got to do with the US sub prime and global recession. When the US stock market crashed, alot of US shares were cashed out by investors as they fear of losing more. The whatever US dollar returns the investors have must be returned in Yen as it was initially borrowed in Yen. Hence, a demand in the Yen currency causes the Yen to appreciate.

Also, hedge fund managers are also under alot of pressure to dump shares, bonds ( due to the global fear ) . Hedge fund managers are GENERALLY peoples that pool alot of money to buy bargainned stocks as they have more bargainning power with more $$. With the global risk adversion( people all kia si already ), these managers are forced to liquidate ( sell ) their portfolio of stocks due to their clients' demand. These massive dumping causes the yen to surge, as explained above.

Lastly, the recent cut of interest rates of major countries like Aussie, NZ, USD means these foreign currencies yield lesser than they used to. ( the Yen - changed to their currencies parked in their banks yield lesser and lesser ) Since they are deemed as risky currencies due to the interest rates falling, people start to dump these foreign currencies in favour of yen.

So, its a) not cool to go Japan now. I dun really think this currency problem will be resolved anytime as everyone out there is kia si already. All investors would rather hold worthless yen then to further lose their $$ in this crazy market. So, to THOSE that are going to Japan, I don't really have a solution for you all. Maybe you can monitor the forex long enough to change into strength ( change for "short term gains" that you observed in this period of time ) and slowly slowly change to average out your changing instead of 1 shot change all. ( If you miss-timed the forex market and anyhow 1 shot change at a LUGI position , dun come spam my blog )

b) Its not cool to buy Japanese car now, assuming the car dealers already adjust their price to these foreign exchange movements. Given a cheap COE recently, one could try to look for european cars? ^_^

Hope u all learnt something. Nice day ahead!