An unwelcomed reminder of devastation raised anxiety for investors who put money into Japan's post-tsunami rebuilding story. A 7.1 aftershock rattled the country and the markets late this week. Thankfully, it resulted in minimal damage, but major power outages occurred in northeastern Japan.
James Bianco, president of Bianco Research, joined "Breakout" to put the investment story into perspective. Bianco says it starts with the Bank of Japan printing a previously unimaginable amount of money to revive the economy and keep the financial hub stable. As for the Japanese currency, Bianco says it "ultimately leads to a weaker yen, not stronger."
So, how should a nimble investor react to the latest aftershock in Japan?
For Bianco, history will likely repeat itself, which takes us back to the 1995 Kobe, Japan, earthquake that killed over 5,000 people and caused widespread infrastructure damage along the southern coast of Japan. "What spawned out of all of that was the yen carry trade," says Bianco.
Fast-forwarding to today's crisis following the Sendai earthquake, Bianco says "we might be re-birthing the yen carry trade." The first signal of this comeback was on March 18, when the G7 nations stepped in with a coordinated effort to unload some of their yen holdings, with the specific intent to weaken the currency. This effort, in conjunction with the Bank of Japan's easy money, low-rate policy, creates the conditions that entice investors into the carry trade.
A carry trade entails an investor borrowing a low-yielding currency -- like the yen -- and investing in higher-yielding instruments in other places.
Bianco's investing ideas stemming from the "yen carry trade, version two" are detailed in the video above.
And, as we get ready for first-quarter earnings season to unofficially kick off on Monday, we couldn't resist questioning how Gap (GPS) could blame Japan for weak March sales and warn on its first-quarter outlook. Bianco says "that's the great American tradition." Details why in the video above.
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