It is being said that one factor behind the latest share price decline is funds raised in low interest yen and invested in global equities being sold off due to the BoJ rate hike and Chinese share price declines. This is the unwinding of so-called yen carry trades. During the global share price decline of spring 2006, it was said that the US housing bubble would burst and US personal consumption would slump badly. During the global share price decline of spring 2004, it was said that the China bubble would burst, or that US personal consumption would slump badly due to higher gasoline prices. Yen carry trades are exactly the same as these, in our view. In some ways, yen carry trades resemble daiko henjo (the uniquely Japanese corporate pension system), which became a reason to sell Japanese equities in spring 2003. There was also a great deal of interest generated at the time, mainly among foreign investors.

Yen carry balances range from ¥10trn to ¥20trn, according to our economics and market analysis team. To begin with, yen carry balances are impossible to calculate accurately. However, the market cap of global equity markets was approximately ¥6,000trn at end-2006. Therefore, if we look at this calmly, we can see that yen carry trades are virtually meaningless for global equity markets, regardless of whether the figure is ¥10trn or ¥20trn. Concerns about yen carry trades are likely to prove groundless, just like concerns about the bursting of the US housing bubble or China bubble. When groundless concerns appeared in the past and share prices fell, it almost always provided an excellent opportunity to buy.

If the biggest concern right now is unwinding of yen carry trades, this is providing an excellent buying opportunity