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Japan's new Prime Minister Shinzo Abe ponders during a plenary session of the lower house in Tokyo,Thursday, Dec. 27, 2012. Abe took office as Japan's seventh prime minister in six years Wednesday and vowed to overcome the deep-rooted economic and diplomatic crises facing his country.
Japan's new Prime Minister Shinzo Abe ponders during a plenary session of the lower house in Tokyo,Thursday, Dec. 27, 2012. Abe took office as Japan's seventh prime minister in six years Wednesday and vowed to overcome the deep-rooted economic and diplomatic crises facing his country.
(Koji Sasahara/AP)

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The yen carry trade turns Japan’s pain into our gain

Japanese Prime Minister Shinzo Abe’s aggressive monetary attack on his nation’s economic malaise may provide a welcome boost to North American equities. For North American investors, the importance of Japan’s new policy direction lies in the increasing attractiveness of the yen carry trade – borrowing funds in Japanese yen, converting to U.S. (or Canadian) dollars and investing the proceeds into asset markets – to hedge funds and institutional investors. The added liquidity has historically provided a significant boost to stock prices.