Unwinding of the Unwinding of the Carry Trade

We believe that this maybe an opportune time to sell the yen. The question is against what?

To those that were living under a rock the last 5 years, Japanese investors hold a minimal amount of their investment assets in equities. The bulk is kept in money market accounts. The Japanese housewive (generically known as Mrs. Watanabe) found that when Japanese money market funds yielded close to nothing, it made sense to speculate in all matters of high yielding currencies from the SA rand, Kiwi and Australian dollars to the Brazilian Real. Use the yen for cheap funding into higher yielding assets.

All of this unwound very rapidly and spectacularly last year. Ms. Watanabe was burned. We doubt there is much of the carry trade left to be unwound. Please look to the one and two year graphs.

http://finance.yahoo.com/echarts?s=USDJPY=X#chart2:symbol=usdjpy=x;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

With exports to the U.S. and China plunging, the Japanese economy is contracting at its fastest pace since 1974.

We note that big support for the yen has been a strong demand for Japanese exports.

With plunging US and Chinese demand, there is little political support in Japan for a strong yen, especially amongst executives of the country's large exports such as Toyota, Honda, etc. Addtionally, the export contraction is creating widening trade deficits in Japan.

Therefore we suggest that rather than buying more yen, a better trade for yen holders maybe to buy precious metals. Do we know if the yen has topped? No we don't, but neither does anyone else.

over the next several years, we suggest that gold in yen terms could surprise to the upside.

http://www.the-privateer.com/chart/g-multi.html