The yen carry trade, borrowing in the cheap Japanese currency and buying an expensive one, was all the rage last decade. Even housewives got into the game.
That “Mrs Watanabe” metaphor has stuck around to suggest small investors speculating in currencies. On Sunday, Japanese regulators started trying to undo this phenomenon by restricting how much retail investors can borrow. Yet, regulators aren’t asking why housewives gambled in the first place. With low interest rates mispricing assets, Mrs Watanabe was really a metaphor for how ordinary savers become extraordinary risk takers.
Those interest rates haven’t gotten higher, and are now the norm across the developed world. Voices in the US, worried about low growth and deflation, are now calling for more aggressive easing.
The longer this remains, the more risk will be mispriced, widening global imbalances. Developing countries such as India, the few places offering high yield, will bear the brunt.