With luck rather than skill, Japan escaped the bubbles in housing, credit and commodities. As Western banks suffered, Japanese ones even went on a small acquisition spree. But the (fairly) good times are over. The unwinding of the yen carry trade, in which investors borrowed low-interest yen to place in higher-yielding assets abroad, has helped to send the yen soaring (see chart). Exotic foreign-currency products sold to retail investors reinforce the currency's upward trajectory.rnThe stronger currency threatens the profits of Japan's big exporters, contributing to a stockmarket rout, which in turn is winnowing Japanese banks' capital. To alleviate the woe, the Bank of Japan was expected to cut interest rates from 0.50% to 0.25% on October 31st. But the economy will still get walloped.
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