Yen and the Art of Global Market Maintenance

[profette_IHB]

<strong><a href="http://www.ft.com/cms/s/0/f9ea6568-918d-11dc-9590-0000779fd2ac.html">Forget the falling dollar, we should fear a rising yen</a></strong>

“…the year-to-date daily correlation between ups and downs in the global stock market versus spreads between the yen and the euro is 93 per cent…The 2007 year-to-date daily correlation coefficient between changes in the yen/euro spread and the MSCI World Index - best reflecting the total developed world stock market - is 0.93. For the S&P 500, it is 0.89, for the FTSE 100, 0.86, and for Germany's DAX, 0.87…The correlation of the MSCI World to the yen/sterling spread is lower, at 0.75, but is still sky-high. To the Australian dollar it is 0.86 and to the Canadian dollar 0.81…”

And the dollar? The correlation is 0.37!

 

[House_of_cards_IHB]

This sounds bad. Could you explain the ramifications of what that means for someone who's still trying to learn about finance (that would be me)?



Is there anyway to "capitalize" on this- like investing in Japanese stocks/funds etc?



Thanks!

 

[awgee_IHB]

<p>hoc - No, there is no way to capitalize on this, unless you can predict the days, weeks, or months in which the Yen moves up against the Euro. The various stock markets have already discounted the change into their prices by the time you see the move, so you must have an edge. Sorry, don't you wish it was something as simple as watching the Yen/Euro spread?</p>

<p>Ramifications? Not sure of what you want to know, but if you want to know why this happens, it is because when the Yen moves up, hedge funds and others who are short yen and long instruments in other currencies, including the Euro, have to cover their yen positions, and they sell equities to raise cash.</p>

 

[profette_IHB]

<p><a href="http://www.ft.com/cms/s/0/d41bd0c2-92ca-11dc-b9e6-0000779fd2ac.html?nclick_check=1">This Just Yen...</a></p>

"Japanese retail investors are pouring into the yen carry trade despite being battered by the recent sharp rise in the country’s currency against the US dollar.

For many individual traders, the yen’s surge against the dollar has been a rude awakening to the dangers of forex trading. Stories abound of housewives losing their lifetime savings within days as the yen value of highly leveraged dollar holdings plummeted.

According to research by Yano Research Institute, the number of foreign exchange margin trading accounts almost doubled last year to 644,802 and is poised to grow another 62 per cent in the year to March, to 1.05m accounts...



<p>Since the summer, instead of taking large positions in one currency, which can lead to huge losses, investors are taking smaller positions and trading frequently and flexibly to minimize any potential losses.</p>

<p>What is more, not all retail traders have lost out in the latest currency turmoil.</p>

<p>One 34-year old housewife who uses the online handle <strong>“Forex-loving Mama</strong>” to blog about her trading, said she had actually made profits by taking both short and long positions in the more than 20 currency pairs she tracked daily.</p>

<p>The woman, who declined to be identified, said she closed her positions each day before going to bed and was not phased by the latest currency moves that had left many retail investors nursing huge losses."</p>