Quote:
Originally Posted by Unique_Carpenter
Sigh.....
A dose of reality:
Japanese Yen is widely used for clearing transactions in the foreign exchange market.
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The yen carry trade has been one of the quiet engines of global risk-taking for years. Investors borrowed in Japanese yen at very low rates, then recycled that funding into higher-yielding assets around the world. The trade worked best when two conditions stayed in place: wide interest-rate gaps and calm markets.
However, those conditions are changing. Today, the Bank of Japan (BoJ) has lifted its policy setting to around 0.75%, a clear step away from the ultra-loose era. The move matters because carry trades are often leveraged, and leverage turns "low" rate changes into "large" position swings when volatility rises.
At the same time, the US Federal Reserve has begun to ease, with the federal funds target range recently lowered to 3.5% to 3.75%. That combination narrows the rate gap that has kept shorting yen attractive.
The primary risk is not the existence of the carry trade, but rather the potential for a rapid unwinding, which can compel traders to buy yen while simultaneously selling risk assets.
But the cheap Yen is coming to an end.
This is to deep for the TDS crowd
