Interest rates of 11.75% in Brazil make for an attractive carry-trade for Japanese banks, who can borrow money at near-zero interest rates and invest in Brazilian government bonds or bank deposits paying double digit yields.
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Mechanically, the extra liquidity has been finding its way into risky assets via the carry-trade.
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The US is the top destination of the Japanese carry-trade, accounting for 35.5% of Toshin fund holdings.
It is now 11.75%, the highest interest rate in the world, and making Brazil a haven for the carry-trade.
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Currency traders were emboldened to take on risk, rebuilding carry-trade positions, and safe harbors like U.S. Treasuries and Japanese government bonds slid.
The foreign-exchange market is hugely liquid, so carry-trade positions were easily unwound.
Quantitative easing and its low interest rate byproduct has increased the global carry-trade out of low yielding countries and into higher yielding ones.
There has been no measurable redemption of Japanese Toshin funds out of Brazil, one of the main sources of the Japanese carry-trade into Brazil.
When it comes to countries like Japan, so called Toshin Funds will undoubtedly be looking for a home in Brazil, a favorite of the Japanese carry-trade.
Their government will allow for regular investors to put money overseas and when China becomes part of that particular carry-trade it will drive up the price of Brazilian bonds as investors chase yield but end up creating bubbles.
Higher rates also makes Brazil extremely attractive to the carry-trade, as investors from low yielding economies will pour into the Brazilian bond market, strengthening the real to the 1.80 level in a flash, and causing mild panic within the Finance Ministry who will argue that Brazil cannot compete in this market with such a strong currency.
Pressure to buy yen can be seen in the sharply higher volatility, spiking up to 9% from 6% earlier this month, according to Interactive Brokers, which notes that there is also higher volatility in the Swiss franc, another carry-trade currency that is rallying this week against the British pound, the Australian and Canadian dollars and the euro.
This can be viewed as the dollar-carry trade, the risk trade, or a hedge against further dollar losses.
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In New Zealand, whose currency is a favorite trade of yen carry-traders, the central bank raised rates for the fourth time this year on Thursday, to 8.25, but signaled it was probably done with its tightening.
This so-called "carry trade" tended to push the value of the yen down.
Specifically, a trader who borrowed big in Japanese yen to buy higher-yielding currencies or higher-yielding assets, the so-called yen carry trade.
But there are now more than 30 supermarkets and cash-and-carry stores in Calais specifically catering for the cross-Channel booze trade, including outlets of Britain's biggest supermarkets, Tesco and Sainsbury.
By lowering the fed funds rate this much below Europe, the U.K., China and most emerging markets, the Fed has re-established the dollar carry trade.
Another contributor to the end of the yen carry trade is this week's dramatic pull-back in the risk appetite of investors, pushing U.S. Treasury yields lower this week (they did rebound on Friday) and sending shock waves through the global equities markets.
This exchange-traded note (similar to an exchange-traded fund) uses the carry trade as an investment discipline.
The carry trade out of Japanese yen for other, higher-interest currencies began to unwind, and the yen gained and the Kiwi dollar came down good.
Other special situation players would be hedge funds playing the carry trade game where they buy these Treasuries with short-term loans at 25 basis points.
Small and medium-sized companies carry out most of the trade between the two countries, the government says.
Again, this was a version of the carry trade: they used their cheap financing to buy higher-yielding assets.
Tokyo has started a new carry trade, in which global investors borrow yen at ultra-low interest rates, exchange it into other currencies and invest for a higher return.
What if the Bank of Japan suddenly raised short-term interest rates, choking off the yen carry trade?
When other world interest rates fell, carry trade investors bought back yen in order to repay their Japanese debts - and those purchases sent the yen higher.
Foreign hedge funds and the like have been unwinding huge positions in the yen carry trade, where they borrowed cheap yen in order to invest in high-yielding currencies.
They will borrow money in low-yielding currencies to invest at higher yields elsewhere (the carry trade).
Its low interest rates, which drag down the currency, can entice arbitrageurs to borrow yen and buy higher-yielding notes elsewhere (see the crushing run-up in the Kiwi dollar) in what is called the carry trade, while favorably priced imports of Japanese manufacture, especially autos, are rubbing salt in wounded places like Detroit.
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