Analysis: Yen's exchange rate and carry tradeA V Rajwade / New Delhi March 05, 2007The main reason underlying the weakness of the Japanese currency is the carry trade. The weakness of the Japanese yen has been a worry for the Europeans for some time. The cross rate against the euro had moved from JPY 140 to close to JPY 160 since the beginning of last year and, in real terms, was at its weakest since 1970 (but towards the end of last week the rate had recovered sharply to 155). According to some analysts, the yen is even more undervalued than the Chinese yuan, in real effective terms. But the G7 statement at the end of the February meeting was stronger in relation to China than Japan. As for the latter, it said,
