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The Yen Carry Trade for Everyman, or, How You, Too, Can Unbalance Financial Markets

I was reminded by an Economist article recently about a conversation I overheard at an Asian noodle shop a few weeks back. Some guy was talking to his buddy. The conversation went, roughly:

“Yeah, I just got a great deal on a boat.”

“Where’d you get the money? Did you hit the lottery?”

“Naw, I got a loan, but with a really good interest rate.”

“What, like 6%?”

“No, 1.5%. See, in Japan they got really low interest rates. I was able to get the loan in yen, and then just convert it over to dollars to buy the boat. But the interest is the same!”

Wow. Amaranth and all other wackiness aside, you know financial markets are getting screwed up when average noodle-shop patrons are using the yen carry trade to finance trivialities.

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