What is a yen carry trade?

This week there has been talk about the yen carry trade. What is it?

from
http://www.investopedia.com/terms/c/currencycarrytrade.asp (link)

Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0.5%. The trader stands to make a profit of 4% (4.5% - 0.5%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 40%.

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In simple terms it means borrowing yen, then buying some other investment, usually a non-Japanese investment that pays much high interest rate than the current 0.5% that it costs to borrow in Japan.

While I'm explaining things, another popular term this week is subprime mortgages.

from
http://www.bankrate.com/brm/green/mtg/basics2-4a.asp?caret=8 (link)
Generally, subprime mortgages are for borrowers with credit scores under 620. Credit scores range from about 300 to about 900, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially someone who falls behind on debts by 30 or 60 or 90 days or more, will suffer from a plummeting credit score. If it falls below 620, that consumer is in subprime territory.
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Subprime loans have higher rates than equivalent prime loans.
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A subprime loan also is more likely to have a prepayment penalty, a balloon payment, or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early -- either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If the borrower can't pay the entire amount when the balloon payment is due, he/she has to refinance the loan or sell the house.
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Unfortunately, a lot of subprime loans are used by speculators. The recent dip in real estate prices, puts these borrowers (and lenders) underwater. Few thought the picture would go bad so quickly. Which brings up the cliche of the day, when things change, they often change quickly.

This is not a time for rash emotional decisions. If a person can't sleep, sell off 10% or 20% of equities. If a person has been on the sidelines waiting to get in, put in 10% or 20%. Going all-in or all-out is a losing game for average people.