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A Vulnerable Japan
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Tuesday, 20 November 2007
By Andrew Gordon
The unwinding of the “carry trade” is doing Japan no favors.  As investors buy yen to close out their Japanese loans, their currency is strengthening against other currencies such as the dollar and euro.
A rising yen is the last thing Japan needs as it grapples with already weakening economic conditions.  All 10 of its leading economic indicators worsened in September, the first time that’s happened in almost a decade.  And a stronger yen now promises to hurt exports, a major driver of Japanese economic growth.

As a result, the Nikkei is hitting lows not seen since last year.
 

The Japan iShares chart above is heading toward a key support point at just below 13.4.  It managed to bounce off this level once.  Can it do it again?

The MACD is looking bearish, and since July the market has been in a clear downtrend.  If the “carry trade” continues to unwind, the market should have trouble turning things around.
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