Synopsis
While a number of investors heard the term “ Yen carry trade” for the first time last Monday, the fact is that literally every sharp hit to the equity market or a real economic crisis which different markets have witnessed since 1990, Yen carry trade had played a role. Right from the Asian crisis of 1997-98, dot com bubble of 2000, 2015 Chinese stock market crash and even to brexit. You name it and at the back of it you will find a Yen carry trade. It is not that Yen is the villain, there is a simple economic logic to it. For more than 40 years, The Bank of Japan has been keeping its interest rate low, it is and probably in all conditions a kind of reservoir, where literally anyone could go and raise money at zero percent interest rate and use that to invest across the globe, make some returns and give the money back to Japan. But there are times, when things turn volatile and make the markets behave the way they did on Monday. It was not the first time that it happened, not the last time, it will reoccur.
The kind of fall which global markets witnessed last Monday is bound to make everyone slightly nervous. Especially Indian investors because we are sitting on big gains and valuations are surely not cheap. So before it happens again and you act on buying or selling any stock in your portfolio, understand that Yen carry trade, what does it mean, how it is done and what makes it so important for asset classes across the world and why it will happen
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