With borrowing rates as low as 0.25%, the Japanese yen is creating potential havoc throughout the global investment community. The level of -carry trade- speculation around the world has fostered major fears of the result of the projected rebound in its value, which appears to be imminent.
Top European and Asian experts have publicly stated that the yen, because of global speculation fueled by borrowing rates near zero, has been forced well under its inherent and natural value. Fears are high that this currency weakness has gone way too far and threatens to pose a major crisis in the investment community. The disparity in the near-zero interest rates in Japan and the very high rates in other parts of the world have created a serious yield gap that could be reversed in short order.
Hedge funds that have been playing this potentially dangerous risk game are betting they can liquidate their positions rapidly once Japan reins in their monetary policy. However, many experts believe the speculation is so wide-spread that all the investors trying to bolt through a small time window at the same time will not succeed without major losses.
Recent Japanese monetary policy made some economic sense while they were engulfed in a serious deflationary problem. But Japan’s economy has once again been growing and the former crisis of corporate defaulted loans has been corrected. All factors indicate a forthcoming resurgence of the yen.
Do these conditions project a real crisis in the global investment arena? Time will prove the wisdom of the “experts” and/or the investment community that has taken advantage of this favorable monetary situation.