The yen climbed against all 16 most-traded currencies after stock indexes in Europe and Asia reversed gains and U.S. equity futures declined. Shares of Barclays Plc fell as much as 9.1 percent on concern Britain's third-biggest lender may announce a writedown of as much as 10 billion pounds ($21 billion). Wachovia Corp., the fourth-largest U.S. bank, said it may raise its allocation for loan losses.
“Risk aversion is coming back to the markets,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG. “The writedowns from financial companies tell you that subprime is a significant issue and dealing with its hangover is going to take some time. The yen will continue to benefit.””
Translation: It is slowly starting to sink in that borrowing massive amounts of money in a declining, low yield currency and investing the proceeds in risky assets in high yield currencies can become a really significant problem really quickly when those risky assets don’t perform as intended.
The Carry Trade unwind is accelerating… global de-leveraging is in full swing now. Expect continued weakness in equities.