The Carry Trade "Carries On"

This week has seen renewed interest in the carry trade for USD and Yen, with the Bank of Japan putting extra stimulus measures into their economy to effectively try and stave off deflation and weaken the yen to an acceptable level.

First a short explanation of the Carry Trade
"The dollar and yen are the two major funding currencies of the carry trade. Investors borrow yen and dollars and then invest the proceeds into higher yielding assets including equities. This is what is called the carry trade, and it works best when an investor can use high leverage to increase the return. Since these trades are highly leveraged, they are closely monitored and reversed at the first sign of a possible fall in the value of the higher yielding assets"

The Reserve Banks and governments around the world have been pumping large amounts of liquidity into their respective economies to get investment and spending going. Whilst this in many areas of the world is a valuable and a needed measure. They have also lowered interest rates to very very low levels in many parts of the world (USA 0.1%, ECB 1.0% and Japan 0.1%). For this reason the carry trade is very attractive and will continue to be attractive until these conditions that I have outlined above are altered.

So, I hear you say, so what, how can we profit from this as traders, and the answer is very simple, I use fundamental analysis to try and ascertain the trend for intraday, one week, one month out etc. I see no reason to short against any carry trade except for the odd day or so where intraday sentiment may dictate something different. The overall trend and reserve bank governors are saying that for the time being the USD will remain weak, the yen will be encouraged into weakness and gold will remain strong.

For this