The Japanese yen was the key beneficiary of Monday’s market turmoil, as the low-yielder jumped 4.85 percent versus the high-yielding Australian dollar amidst a major carry trade sell-off.
Indeed, anything associated with risk, be it stocks, forex carry trades, or commodities (except gold, a standard safe-haven instrument), fell significantly on news that the US House of Representatives voted down the Treasury’s $700 billion bailout bill. Without the passage of this measure, there will remain significant downside risks for the Japanese yen crosses. However, even if it does pass eventually, there will still bearish potential. Indeed, it has become clear that the credit crisis is hitting the world’s financial markets quite hard as evidence by the UK’s nationalization of Bradford & Bingley and the need for emergency liquidity by Belgium’s Fortis and Germany’s Hypo Real Estate. True financial stability is not likely to come soon, and as a result, traders are highly unlikely to pile back into the carry trade. My long-term fundamental bias for the Japanese yen: bullish.
[B]Related Article[/B]: Carry Trade Set For Difficulty Regardless of the Bailout, Bank Failure Boosts Forex Volatility, Japanese Yen May Rally
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