Hi,
Everyone says that Yen pairs are affected by the equity market because a lot of equity purchases were funded by the "carry trade". But I don't understand how organisations "borrow the money from japan" in the first place??
Is it simply that an organisation buys JPY with some spare USD, and it's the "overnight interest" that pays for the equities?
Or would they have a credit agreement with a Japanese bank and, quite literally, get an ongoing loan for however much they need? I assume that this technique is not normally open to a retail equity investor. Why wouldn't companies (or the rest of the planet) get loans like this if they were looking for cheap finance? Is it just the exchange rate risk that stops people? (Apart from having to fill in the forms in Japanese!)
All in all, I'm a bit confused. Any insights appreciated.
El choco
Everyone says that Yen pairs are affected by the equity market because a lot of equity purchases were funded by the "carry trade". But I don't understand how organisations "borrow the money from japan" in the first place??
Is it simply that an organisation buys JPY with some spare USD, and it's the "overnight interest" that pays for the equities?
Or would they have a credit agreement with a Japanese bank and, quite literally, get an ongoing loan for however much they need? I assume that this technique is not normally open to a retail equity investor. Why wouldn't companies (or the rest of the planet) get loans like this if they were looking for cheap finance? Is it just the exchange rate risk that stops people? (Apart from having to fill in the forms in Japanese!)
All in all, I'm a bit confused. Any insights appreciated.
El choco