Investors should borrow yen to buy higher-yielding assets in other currencies as so-called carry trades make a comeback on easing risk aversion this year, according to Wakabayashi FX Associates Co. Selling Japan’s currency today for the Russian ruble may provide a total return of 32 percent this year, based on Bloomberg calculations using analyst exchange-rate forecasts and the difference between the two nations’ interest rates. The strategy lost 22 percent last year. The yen carry trade for the Mexican peso may give a total return of 26 percent this year, compared to a loss of 29 percent in 2008. “As the crisis eases somewhat, taking a yen carry strategy will prove to be successful this year,” said Eishi Wakabayashi, a currency strategist and president of Wakabayashi FX Associates, an investment information service provider in Tokyo. The yen gained 23 percent versus the dollar in 2008, the most in more than two decades, as investors sold higher-yielding assets financed in Japan amid a global credit crisis. In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. The ruble will trade at 2.7 yen at the end of this year, according to cross-rate calculations using forecasts from analysts surveyed by Bloomberg. The ruble declined 0.3 percent to 2.594 as of 3:07 p.m. in Tokyo. Mexico’s peso will trade at 7.4 yen at the end of 2009, according to similar calculations. The peso fell 9 percent to 6.304 today. Japan’s benchmark interest rate of 0.1 percent compares with 13 percent in Russia and 7.5 percent in Mexico.

Source