How on Earth are Hedge Funds and Investment Banks able to borrow Yen from Japanese Banks? Do they establish direct lending connections with Japanese Banks? Or are they using the Future or Forex markets to somehow get their hands on Yen which they can sell for Dollars or other currencies and invest?

Alby,

A fantastic question that I don't fully know the answer to. I will be watching to see if anyone does. I do know that smaller investors are able to use standard Forex brokers who pay sufficient swap rates to make the carry trade profitable. But how large organizations participate I don't know.

One interesting side note; most experts agree that the carry trade is dead (at least for the time being).
-“The carry trade is dead,'' said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi in London. “The world is deleveraging.'' http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awXZ4bPk3Y2M.

Over the last week alone we have seen the GBPJPY fall from 190 to 170, and the AUDJPY from 85 to 63 at one point.

powered by Yahoo Answers