Unwinding The Yen Carry Trade

Most people probably won't find this interesting, but FLG does. In the midst of all this economic turmoil, the Yen Carry Trade unwound. FLG's been following the story for a while.

I'll summarize:
As the Federal Reserve has been lowering interest rates you may have heard fears that it is pushing on a string like the Japanese economy in the 1990s. The Bank of Japan pushed interest rates really low, and I think actually to zero, attempting to stimulate the economy. Since the economy never fully rebounded, the rates stayed low.

The Japanese are huge savers, and nobody wants to get no interest on their savings. So, Japanese housewives started converting their money into Australian and New Zealand dollars, which had much higher interest rates. I won't get into all the effects, but let's just say these housewives made a bunch of money from the currency trades as well as the additional interest. However, many experts warned that these amateur international currency investors were in over their heads and unaware of the risks they were taking on.

Anyway, as the financial crisis hit some of these Japanese housewives panicked and brought their money back. This led to a strengthening of the Yen versus the AUD and NZD, which wiped out some of those international savings. Here's a graph that shows the plummeting value of a Japanese person's savings in AUD over the last few months.