The Yen carry trade is a very powerful force affecting global markets. With very low rates and certain status (perhaps questionable) as a safe haven, the Yen financed a significant portion of the AI rally in the U.S. as well as the HY market and the Mexican Peso Cetes. But since the beggining of July, the Yen has strengthened aggressively (12%) vs the U.S. dollar as the carry trade was being unwound. Despite that fact, if you look at the chart below in the context of prior big Yen carry trades, we’re still halfway of what history would suggest. US corporations have taken the baton from the carry trade after the blackout period at the end of July, using buybacks to push their respective stocks up, but there may be another unwinding episode for the yen carry trade coming. Japan is hiking rates, and the U.S. should start the cutting cycle, making the yen carry trade less attractive. We might be talking about trillions of loaned Yen being “relocated”.
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