More on unwinding of the carry trade

http://gregmankiw.blogspot.com/2008/05/is-yen-negative-beta-asset.html


Dr. Mankiw observes that the yen has been negatively correlated with the S&P 500 recently. He quote another economist:

Why the striking pattern in the last year? I think it's because during the liquidity crisis, the stock market has fallen at times when hedge funds and investment banks are deleveraging -- at such times, they cover the carry trade, that is, they buy yen and sell high-interest currencies such as the Australian dollar.