With the Japanese Yen having fallen over 10% in quick time, where is the money going? Japanese investors have enormous appetite for carry (that is, investing in currencies with high short term interest rates). Its no surprise then, that the Indian Rupee is being solidly bought in offshore markets. The ‘Curry Trade’ offers a 6% yield advantage over Japanese bank deposits plus India is viewed positively by the Japanese as an economic emerging powerhouse.
The INR/JPY cross is up nearly 1% today as a number of high profile Japanese banks are recommending the Rupee. If this positive sentiment towards the curry trade takes root in Japan then the weight of money can easily push the Rupee up 10-20% over the next three months. [I am personally long the Rupee – Ed]