Market Shock: Analysts Cite Yen, Naive Investors

Friday, 2 Mar 2007 | 2:35 PM ET
Klaus Regling, chief executive officer of the European Financial Stability Facility (EFSF)
Nelson Ching | Bloomberg | Getty Images
Klaus Regling, chief executive officer of the European Financial Stability Facility (EFSF)

Many of those seeking reasons for Tuesday's market meltdown have turned from China to Japan. Two forex experts told CNBC's Liz Claman why the global shock may have more to do with Tokyo than Shanghai -- or New York.

Greg Anderson, Senior Foreign Exchange Strategist at ABN AMRO, declared that today's U.S. dollar slide was actually "all about the yen" and the carry trade (see Steve Liesman's post on carry trade). On "Morning Call," Anderson said ominously that we've just witnessed "Phase I of the unwind," which he defined as "fast money -- hedge funds, bank market speculators" fleeing the exchanges. He warned that "Phase II" will will see the market flight of Japan's retail investors and its corporate sector, as well as "some of the slower" institutional investors -- e.g., Japanese life insurance companies with liabilities in yen and assets abroad.

David Gilmore, partner at Foreign Exchange Analytics, scoffs that the public has been "bombarded with silly excuses" for the market slide, including the subprime lending crunch, credit spreads and Alan Greenspan using the infamous "'R' word." But the real culprit, he says, is "perfection being priced into" markets. Then, investors "suddenly realized" trading occurs in an "imperfect world," and "two-way risk entered finance market" psychology. Gilmore added a cautionary note: "You don't need a real sector event to trigger this sort of market panic."

Yen vs. Dollar
The yen has had a very good week against the dollar and virtually every other currency, with Greg Anderson, ABN AMRO senior foreign exchange strategist; David Gilmore, Foreign Exchange Analytics partner and CNBC's Liz Claman