Loading ...The next two weeks could prove to be very interesting…..
August 2024. A single BOJ rate hike triggered a 12.4% single-day crash in the Nikkei. The VIX spiked above 60 – levels only seen during 2008 and COVID. The yen carry trade had accumulated somewhere between $250 billion and $500 billion in positions. When the BOJ hiked and the yen strengthened, the unwind was violent. Swift. Global.
That was with rates at 0.25%.
Now rates are heading to 0.75%. Yields are at 17-year highs. Regional banks are drowning in unrealized losses. And much of that carry trade remains unwound.
12/9-10 The Fed meets. 12/18-19 the BOJ meets.
Japanese regional banks need to sell bonds that they can’t afford to hold. The carry trade sits there, largely still unwound.
Hmmmmmmm….