Carry Trade Recovery Limited by Continued Volatility in Equities

News that a bank bailout plan for bond insurer AMBAC will be announced Monday or Tuesday triggered a 200 point reversal in the Dow. Unsurprisingly, the move had only a limited impact on carry trades.

Although the correlation between carry and equities continues to fade, the one thing that remains unchanged is the fact that the volatility in the equity market is a big reason why carry trades have been unable to muster a sustainable rally. This relationship should be the main focus of Yen traders. Meanwhile there will be a lot of Japanese economic data due for release in the week ahead including retail trade, industrial production CPI and overall household spending. These reports should only have a limited impact on the Japanese Yen.