About the carry trade....

Welcome to the Precious Metals Bug Forums

Welcome to the PMBug forums - a watering hole for folks interested in gold, silver, precious metals, sound money, investing, market and economic news, central bank monetary policies, politics and more.

Why not register an account and join the discussions? When you register an account and log in, you may enjoy additional benefits including no Google ads, market data/charts, access to trade/barter with the community and much more. Registering an account is free - you have nothing to lose!

foolsgold

foolsgold

Big Eyed Bug
GIM2 Refugee
Messages
380
Reaction score
579
Points
268
I understand the concept, but the details escape me, nor do I want to know about the details. I have one simple question....

Was it Yen strength that caused the market to puke or was it Yen weakness?

Thanks
Steve
 
Yen carry trade = borrow Yen at low rates, convert Yen to another currency (USD) and invest in safe, higher yield (rate) products. It's an interest rate arbitrage done with leverage. As the BOJ raises rates (or the Fed lowers rates), the carry trade becomes less profitable.
 
File under, "Oh, that's interesting":

 

Japanese Yen Carry Trade Unwind Spurs Market Chaos Monday​

Market chaos hit early this week as the fiat Japanese yen carry trade unwind violently flushed various financial markets around the world.
Reports also on Monday indicated that many of the retail public's largest stock market brokerage account websites were frozen and offline, leading many to deduce coordination.
Whatever the reason, it's not confidence-inspiring, to say the least.

Let's put this week's yen carry trade unwind into further local gold and silver context.
The spot silver and gold markets closed lower on the week, mainly driven by Monday's yen carry trade unwind selloffs.
The spot silver price finished the week near the $27.50 oz bid, while the spot gold price nearly erased all losses from early in the week, finishing at the $2,430 oz bid.
The spot Gold Silver Ratio finished up on gold's relative strength over silver ending at 88.

That will be all for our weekly SD Bullion Market Update.
And as always to you out there, take great care of yourselves and those you love.


18:18
 
BIS podcast, nothing to see, can listen in one tab, play around the forum in a different tab.

BISness podcast - The carry trade unwind​

Sep 6, 2024

In the early days of August, financial markets were roiled by a burst of volatility. Investment strategies that heavily rely on leverage and are predicated on volatility, especially in stock, currency and options markets, had to be unwound.

Currency carry trades, especially those funded in yen, were the hardest hit. The currency carry trade involves borrowing in a lower interest rate currency to invest in a higher interest rate currency. This allows investors to profit from the gap in interest rates but also exposes them to currency risk.

In the latest episode of our BISness podcast, Andreas Schrimpf and Vladyslav Sushko speak to Krista Hughes about the drivers and implications of the carry trade unwind.

Listen to the podcast on the BIS website or your favourite podcast platform Read the BIS Bulletin for more at https://www.bis.org/publ/bisbull90.htm


19:56
 
The Fed is expected to lower rates by 25 or 50 very soon. Will it cause further unwinding of the carry trade? Or is it "already priced in"?
 
So the BOJ says, but they have a GDP/debt ratio of about 200%. They can't pay the interest if rates go up
 
It seems a bit volatile at the moment....

The Bank of Korea (BOK) has estimated the total value of funds tied to the yen carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields, at approximately 4,690 trillion won ($3.5 trillion). The central bank analyzed that about 302 trillion won ($227 billion), or 6.4% of the yen carry trade, could be liquidated in the event of global interest rate cuts.
...
The BOK forecasted that investors will unwind more carry trades once major countries begin lowering interest rates following the Federal Reserve’s recent rate cut. The liquidation volume is expected to reach an additional 32.7 trillion yen (about 302 trillion won).
...
Click to expand...

www.chosun.com

BOK warns of $227 billion yen carry trade liquidation as global rate cuts begin

BOK warns of $227 billion yen carry trade liquidation as global rate cuts begin
www.chosun.com www.chosun.com

Inflation data drives interest rate speculation...

www.fxempire.com

Japanese Yen Forecast: Will USD/JPY Break 145? Tokyo Inflation and US Data Hold the Key

Tokyo inflation and US income data drive USD/JPY outlook. Lower Tokyo inflation may dampen BoJ rate hike bets, while US inflation could shift Fed rate cut expectations.
www.fxempire.com

Meanwhile the forex pair gets monkey hammered this morning. Maybe this is why...
When Takaichi won the first round of votes, it led USD/JPY to leg up higher to above 146.00. But in the head-to-head vote against Ishiba, she lost out and that's resulting in a massive turnaround in USD/JPY now. The pair has tumbled from around 146.20 to 143.80 levels currently.

Takaichi was the most vocal among the candidates and she viewed that the BOJ was hiking rates too quickly. As such, when she was seen leading the race early on, traders moved to price in a softer yen. But as Ishiba wins out now, it is going back to the drawing board for USD/JPY.
...
Click to expand...

www.forexlive.com

Japanese yen surges as Ishiba wins leadership race to become next Japan prime minister | Forexlive

Traders were pricing in the possibility of Takaichi winning earlier before the run-off vote
www.forexlive.com www.forexlive.com
 
kUl8wP.gif


japanese-gameshow.gif


f676cc86d7942c06d5b944883d6e6789.gif
 


Looks like the BoJ won't put more stress on the Yen carry trade by raising rates while the Fed et al are cutting rates.
 
Mario talks about the yen & carry trade in this one. He's in Rome celebrating his bd. 16 mins long, not much to see. Can listen in one tab, play around the forum in a different tab.

Bank of Japan Reverses Hawkish Policy and Condemns Yen to Worthlessness​

Oct 3, 2024 #stockmarket #dollar #investing

 
The yrn already reversed lower against the $USD. I don't know if this was a planned shakeout or just incompetence.

The Japanese economy needs lots of inflation to marginalize their debt. It sucks badly for the population.
 
... Japan’s ruling Liberal Democratic Party and its coalition partner are set to lose their majority in Sunday’s election, according to a forecast from public broadcaster NHK, raising questions about the future of Prime Minister Shigeru Ishiba.
...
“If the LDP does indeed lose its majority powers, this could create a quagmire regarding the legislative process — a scenario which may not bode well for the yen and the Nikkei, at least in the short term,” said Tim Waterer, Sydney-based chief market analyst at KCM Trade.
...
Click to expand...

Japan's Ruling Coalition To Lose Majority For First Time Since 2009: What Happens Next And How Will Markets React | ZeroHedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero
www.zerohedge.com www.zerohedge.com
 
Futures traders are piling back into bets against the Japanese yen.

That’s making one longtime market watcher nervous that investors could see a repeat of the vicious unwind of the yen carry trade that rattled global markets on Aug. 5.

“Traders are piling up bets against the yen again, less than a month before the next BOJ meeting when a hike like the last one in August could trigger a reversal,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co.
...
As Kleintop noted, the BoJ is expected to announce another interest-rate hike when its December policy meeting ends on Dec. 19.
Click to expand...

More:
https://www.msn.com/en-us/money/mar...ing-unwind-of-the-yen-carry-trade/ar-AA1uwfIv
 


My theory is that the BoJ tried to prick the asset bubble by strengthening the yen. The market fought them off and doubled down on the carry trade.

Japanese banks are forming a double top on both the daily and weekly charts. If confirmed, we are likely to see the yen take out leveraged traders and cause a calamity on Wall Street.

De-leveraging episodes are always ugly. I'm a trader, I use stops, etc so it shouldn't matter - but I'm nervous as hell and sitting on a pile of cash. If this is what I think it is, I want to bargain shop rather than get hurt and freeze.

In a month's time, Norinchukin Bank will be a household name.
Click to expand...
 
You must log in or register to reply here.
Back
Top Bottom