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Subject:  Re: BOJ: Potentially Important Date:  3/9/2006  10:20 PM
Author:  DrTarr Number:  15752 of 37023

There are bigtime players who are borrowing money in Japan at 0% (essentially) and buying things like 10-yr Treasuries


Lets see if I remember how this goes?

This is one of the reasons for the varying exchange rate (yen v dollars) as one borrows the money in Japan at 0%, say 100,000,000 yen and then converts to dollars at 100 to 1 (117.3) so they invest 1,000,000 dollars and get 5% over a year. But they get 1,050,000 dollars and then have to go back to yen so the exchange rate in a year should be 105¥ to $1 (123)

If Japan raises their rates, it will slow the exchange rate change per time (rate rate??) Which could make the carry trade Bruce mentions vary profitable or if it doesn't work right very painful.

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