Carry Trades hit by a Wave of Profit Taking

With no major US data released today and the Japanese markets closed for a holiday, carry trades have succumbed to profit taking. Aside from NZD/JPY, most of the Yen crosses are either flat or slightly lower. The fact that they did not continue to rise after a fairly large earthquake hit North West and Central Japan is a testament to the currency market?s continual appetite for risk. The Dow Jones Industrial Average is now 50 points shy of hitting 14,000. Based upon last week?s monetary policy meeting, the Bank of Japan is in no rush to raise interest rates.

As long as this stance is confirmed by the release of their minutes from the meeting held between June 14 and 15, the market will not be worried that an interest rate hike by the Japanese will be what puts an end to the carry trade. Instead, another major headline about the problems in the sub-prime sector exacerbating could be the catalyst for a sharp increase in risk aversion.