Economy Strains Under Weight of Unsold Items - washingtonpost.com

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Economy Strains Under Weight of Unsold Items - washingtonpost.com: "Some analysts see ending the credit crunch as soon as possible as critical to preventing lasting damage. Harvard economist Diego A. Comin, in his research on Japan's decade-long bout of economic stagnation in the 1990s, found that demand stayed low long enough that businesses didn't make necessary investments. Computer adoption rates, for example, slowed, as did productivity growth. Businesses lost ground to competitors in countries such as South Korea, which made it harder for Japan to emerge from its slump.

Investing in new products and processes matters even more in highly competitive global industries plagued by over-capacity."

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Japan Heads for Worst Postwar Slump

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Bloomberg.com: Worldwide: "Jan. 30 (Bloomberg) -- Japan headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December, unemployment surged and households cut spending.

The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.

Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toshiba Corp., which is firing 4,500 workers, yesterday forecast a record annual loss and said it will delay building a chip factory. Honda Motor Co. this week widened production cuts.

“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”

The Nikkei 225 Stock Average sank 3.4 percent at the morning close in Tokyo, led by Toshiba and Nintendo Co., which cut its profit forecast by a third yesterday. The Nikkei has fallen 10.1 percent this year, extending last year’s record 42 percent drop."

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Help! What is Carry Trade

50 yenCurrency Carry Trade: "A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.

Investopedia Says... Here's an example of a 'yen carry trade': a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar was to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless he"

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