Randomly Noted

Retail investors are often looked on as the unsophisticated types who move slowly and late and rarely have a short-term affect on financial markets.  They broke from that mold in Japan, where retail FX traders  (known as Mrs. Watanabe) contributed to a surge in the Japanese yen this week when they began to unwind a popular strategy called the carry trade.  Many of these investors had shorted the yen and gone long currencies that offer higher yields (the so-called carry trade). Concerned about the effects of the horrible earthquake in Japan on its economy, these investors unwound these trades – meaning they bought the yen en masse and sold the other side of the trade, often the Australian dollar.

Is it possible that the retail investor could move the currency of the world’s third-largest economy this way? Sure thing, because Japanese retail trading of the yen can account for nearly 30% of all trading on any given day.

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It was a lousy morning for the U.S. dollar in Asia following Friday’s broad-based rejection of the greenback. The euro climbed to the highest it had been in six weeks and among Asian currencies, the Korean won and the Singapore dollar hit six- and four-month highs, respectively, DJN’s Miho Nakauchi reported. The yen gained relative to the USD and EUR, reflecting selling by Japanese exporters on a post-holiday settlement day. USD bounced a bit as the day stretched on but affection for the dollar remains fairly tepid. Brown Brothers Harriman expects several more weeks of a weak USD followed by something of a rebound, reflecting what BBH describes as an improved U.S. economic outlook. Hmmm. In her “Money Talks” column today, DJN’s Ros Mathieson questions the notion of a revived American economy. She notes that the euphoria over “less bad” U.S. economic data is a tad absurd. “We’re so keen to put things in our ‘green shoots’ baskets that we could overlook the ongoing warning signals being sent by economic data,” she writes. Continue reading…

Japan’s currency is unquestionably on a weakening trajectory. Where it stops, nobody knows, and nobody really cares because it’s good news for the declining Japanese economy. And what’s good for Japan’s economy is good for makers of all the goods Japanese consumers buy.  Only thing is, it’s hard to visualize how a weak yen will translate into concrete economic growth as the currencies of other export-dependent economies likewise decline. Non-yen revenues (such as those generated in the U.S. and Europe) stated in yen terms in corporate earnings statements will look awfully pretty. Prettier balance sheets should give Japanese companies the wherewithal to maintain employment and capital expenditure levels.  But Japan’s companies face a mighty foe: the woeful won. Korea’s weak currency gives that country’s corporate sector, especially its auto, electronics and steel manufacturers, a big advantage. That edge could continue giving Japan Inc., and Japan’s economy, a lot of grief even as the mighty yen falls further.