Yen Slides as Carry Trades Resume

With no key economic news due today, the carry trades became the focus of the market. The yen slides against its major rivals on Tuesday as investors renew carry trades. The dollar broke major resistance around 118.50 against the yen and reached a one-month high at 118.90, close to the next target at 119.

There are two main factors that push carry trade strategies back to forefront. Firstly, investors regain appetite in risky assets as geopolitical risks eased and global stocks rebound. UK Prime Minister Tony Blair said the UK would try to keep negotiations with Iran over fifteen captive British sailors and Marines peaceful and calm. Asia and European stocks opened high on Tuesday. Secondly, the interest rate differential between Japan and other industrial countries may be widened even further. Australia and UK may raise interest rates this week. Also, the European central bank is expected to lift interest rates next month. In contrast, Japan will leave its interest rates steady in the short term.

However, the yen may be supported if the market starts to speculate the possibility that the upcoming G7 meeting may talk about the yen weakness. Canada Finance Minister Flaherty said yesterday that the yen would be discussed at the G7 meeting to be held April 11-12.

USDJPY encounters interim resistance at 119, backed by 119.30 and 119.50. Subsequent ceilings will emerge at 119.80, followed by 120 and 120.50. On the downside, support begins at 118.70 and 118.50, followed by 118.30. Additional floors are eyed at 118, backed by 117.70 and 117.50.

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