An investor could have borrowed yen yesterday at an annual rate of 0.55 percent for three months and deposited the funds in a U.S., Australian or New Zealand dollar account yielding 5.3 percent, 6.5 percent and 7.7 percent, respectively. If the investor were more daring, he could have used his cheap yen to invest in Iceland, where the three-month deposit rate was about 15 percent, or Turkey, where it was 19 percent.
At about 2.10 percent for three months, Swiss interbank rates aren’t as low as Japan’s, though they are low enough to keep this interest-rate arbitrage game alive. The gap between Swiss rates and those in other countries “is almost an invitation” for carry trades, Swiss National Bank President Jean-Pierre Roth told reporters in mid-December.
Hungarian homeowners agree. In the second quarter of 2006, 74 percent of mortgage refinancing by FHB Mortgage Bank Nyrt., Hungary’s No. 2 mortgage lender, were denominated in foreign currency, overwhelmingly in Swiss francs, according to the bank’s preliminary report for the first half of 2006.
What’s more, Japanese housewives, who traditionally manage the family’s investments, make the Hungarians look like skinflints. Seeking higher returns abroad, Japanese retail investors have purchased 30 trillion yen ($247 billion) of foreign bonds since the Bank of Japan initiated its zero- interest-rate policy in 1999, according to JPMorgan Chase & Co. estimates.