name, did you read the links discussing the yen carry trade? Here's one link I posted discussing the yen carry trade and its role in the 2008 fiasco. http://goldnews.bullionvault.com/yen_carry_trade_101620084 Some excerpts from this 2008 article: "Japan sits at the epicenter of "bubble-mania" in foreign exchange, because its yield starved domestic investors plowed $6 trillion of their savings into overseas assets. ...Over the past several years, carry traders inflated several emerging stock markets to astronomical heights, and also boosted more mature stock markets in the developed economies. But the current unwinding of "Yen carry" trades is a very destructive force to global stock markets, much like the interbank credit freeze or the nuclear credit-default swap (CDS) time-bomb. ...making the "yen carry" trade one of the most feared weapons of mass destruction in global currency, commodity and stock markets today."
These are not my words, they're the authors words.
Finally, this guy batinater in the message link referred above, is saying that the AUD/JPY and AUD/USD are the primary carry trades today. The carry trade is dependent on inflation in the aussie economy. If inflation slows down there or the interest rates in U.S. or Japan go up, the carry trades will unwind. They are in the trillions. Nobody knows.
That's not to say after a correction the market will continue back up with government money printing, which I am not in favor of. Even Bernanke is out saying the initial money printing may be less than some have forecast.
This was not a discussion of interest rate swaps or other hedging, just the carry trades, and the role is very real and important in the inflation of markets everywhere, as this poster attests..
On Nov. 2 the RBA (Aussie central bank) is meeting about a rate decision.
take special note of the posts from batinater. He explains how carry traders have leveraged the markets everywhere to dizzying heights. The batinater clincher:
"The carry trade started in the 1990s. It has helped inflate every bubble since then. One of the first casualties was LTCM, because the yen rose ONLY 14% in a very short time. Look up LTCM and yen carry trade. the history of it's path of destruction is fascinating, and scary. NOW it's the world's reserve currency, how scary is that?
The answer to your question is YES, 100 times yes. That's the leverage in that trade sometimes. I read that some are offering up to 250x leverage and possibly more. How insane is that. You know trading in FX markets has gone from about 2 trillion a day to over 4 trillion now. No wonder when you read the OCC quarterly report the majority of the 800 Trillion in derivatives is in currency and interest rate swaps. It is a nightmare in the making, IMO. "