Whose yen is it anyway? Strong yen, weak yen and why in the world does the oil market care? Well the Japanese yen along with the dollar, have been bit players in the massive run in the oil. This year as traders looked for trades to carry them away, one trade that was very bullish for oil was the dollar/yen carry trade.
Oil soared as investor sold dollars because of our negative interest and bought other currencies, even the yen for heaven’s sake, that were yielding a higher interest rate. Traders tried to lock in the difference between the rates. Aggressive traders would take the profit from that yield and try to use it as free money to make more aggressive trades! Some even bought oil! Imagine that. By buying oil, it was like doubling down because as the trade gained more popularity and because oil is priced in dollars as the dollar weakened, oil rallied even more.
Other traders just took a piece of this trade by just selling the dollar outright or going long the yen or just buying things that would benefit by the weak dollar scenario like gold, silver, grains, copper and yes, even oil. Yet big changes in Japan and some mixed signals on the yen is causing some adjustment in this carry trade. It is also causing adjustments in the many cross currency/commodity spreads that in part explains why the oil and other commodities may seem to be less sensitive to movements in the dollar as of late.....Read the entire article.
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