Manish Singh, CFA’s Post

#GlobalMarketsTankedRecently: The Yen Carry Trade is Key #BorrowingCheapYen: - Asset management firms borrowed Japanese yen at low interest rates. - Invested the borrowed yen in money markets or global stocks for higher returns. #LongPeriodofLowRates: - Japanese central bank rates have been low for nearly 20 years. - Rates were even negative for much of the last decade. - Borrowing costs were essentially zero, allowing for profitable investments elsewhere. #RateHike: - Last week, the Bank of Japan raised interest rates to 0.25% (first hike since 2007). - This occurred while central banks in Europe and the US are considering rate cuts. #StrengtheningYen: - The rate hike caused the yen to strengthen rapidly against the dollar. - Brokers issued margin calls to asset managers, requiring them to deposit cash to cover potential losses. #ForcedAssetSales: - To meet margin calls, asset managers had to sell their dollar-denominated assets quickly. - These assets were falling in yen-value, necessitating even more sales to repay the yen loans. #DominoEffect: - Rapid unwinding of trades caused a sharp drop in stock values. - This accelerated the fall in yen-value of assets, leading to more forced sales. #MarketCorrection: - The combination of the yen carry trade unwinding and fears of a US recession led to a significant market correction. #Source: - Explanation and infographic credited to the Kobeissi Letter (Twitter).

JPMorgan Says Unraveling of Carry Trade Is Only Half Complete (Bloomberg) - The recent unwinding in carry trade has more room to run as the #yen remains one of the most undervalued currencies, according to JPMorgan Chase & Co. “We are not done by any stretch,” Arindam Sandilya, co-head of global FX strategy, said on Bloomberg TV. “The carry trade unwind, at least within the speculative #investing community, is somewhere between 50%-60% complete.” The trade has been pummeled this past week as yen #volatility jumped amid fears of a looming US recession and the Bank of Japan’s rate hike. Yen carry trades — borrowing at low rates in #Japan to fund purchases of higher-yielding assets elsewhere — were among the most popular as volatility remained low and investors bet Japanese interest rates would remain at rock bottom. A recovery in carry trades to levels prior to the yen’s rally is unlikely anytime soon as the technical damage inflicted on portfolios from the short, sharp move “is not easily undone,” Sandilya said. “A good case outcome is stabilization in #markets around current levels, maybe a shallow recovery at best,” he said. “But in many of these instances you tend to get continuation of the moves, if at a lower velocity than what you had before.” #trading #finance

It's not even half, maybe only 5-10%. Yet, there's still a lot of leverage from this crowded trade. Just wait until the BOJ implements more rate hikes to make its monetary policy more effective. #finance #investing

Do you really know what happened this week and why markets crashed? Wall Street is very dismissive when it comes to trying to explain why these things happen, so here's the real reason. It's called a carry trade, which is essentially the process of borrowing money in a cheap (and low interest rate) currency while at the same time investing in a more expensive (and high interest rate) currency. As interest rates drive some of the currency's valuation and demand, you can probably guess how the Fed's promise to cut rates soon, and the Bank of Japan's recent rate hike, will affect this carry trade. And of course, where currency goes, stocks end up going too. #stocks #money #forex #trading #investing #stockmarket #japan #inflation #business #finance

Equity Strength Weighs on The Yen ; Conditions appear to be ripe for a popular carry trade to make a comeback from the recent, painful unwind -- albeit with a bit more (much more) restraint… Risk appetite is improving as traders are trimming bets of aggressive Fed easing with recession fears fading on the back of resilient US data… Equity volatility has collapsed, while that for FX has fallen near to its five-year average… Stock market and more recently yuan appreciation are the key ingredients for carry trades to perform, according to an Bloomberg-Analysis of such strategies over the last 15 years… Meanwhile, volatility and rates are not as consistently significant as one would expect… That explains why the yen is marching higher against the US dollar after slumping ~12% from the July peak to the August trough… A return to 160 is (clearly) unlikely now that the Bank of Japan let the tightening genie out of the bottle, but that doesn’t yet relieve it from its funding currency duties… Rates there will remain low, especially with respect to peers… G-10 central banks have adopted a cautious stance to rate cuts and BOJ Governor Ueda is likely to confirm at his session before the Diet next week a measured approach to hiking… This should keep “carry junkies” satisfied even if they may not be in a hurry just yet… #investmentideas #investments #shares #financialmarkets #business #stocks #equities #economics #macroeconomics #commodities #geopolitics #currencies #inflation #emergingmarket #interestrate #mortgagerates #finance #brent #wti #oil #recession #gold #copper #stockpicks #emcurrency #em #dollarindex #politics #foreignexchange #fx #forex #dollarindex #carry #yen #familyoffice #investors #fomc #federalreserve #energy #earnings #banking #monetarypolicy #bondyields #ustreasury #dxy #crudeoil #worldeconomy #usequities #yieldcurve #growthstocks #valuestocks #money #capital #investmentadvisory #sp500 #financialmarkets #familyofficeinvestments #finance #economy

𝐇𝐨𝐰 𝐭𝐡𝐞 𝐲𝐞𝐧'𝐬 𝐫𝐞𝐜𝐞𝐧𝐭 𝐫𝐢𝐬𝐞 𝐫𝐞𝐥𝐚𝐭𝐞𝐬 𝐭𝐨 𝐭𝐡𝐞 𝐮𝐧𝐰𝐢𝐧𝐝𝐢𝐧𝐠 𝐨𝐟 *𝐜𝐚𝐫𝐫𝐲 𝐭𝐫𝐚𝐝𝐞𝐬* 💼💱: - The yen rose sharply against other currencies due to a significant event known as the "carry trade unwind." This occurred when the Bank of Japan unexpectedly tightened its monetary policy, making borrowing in yen more expensive. As a result, investors who had borrowed in yen to invest in riskier assets were forced to reverse their trades. This led to a rapid sell-off of investments, causing the yen to rise sharply against other currencies. The impact of this event was felt not only in the Japanese stock market but also in other global markets, demonstrating the interconnectedness of the global financial system. - **💸 𝐑𝐢𝐬𝐢𝐧𝐠 𝐘𝐞𝐧 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐑𝐚𝐭𝐞𝐬**: With the Bank of Japan’s policy shifts, borrowing in yen is now less attractive, as Japanese interest rates are slowly rising. This shift makes funding carry trades in yen less profitable. - **🔁 *𝐂𝐚𝐫𝐫𝐲 𝐓𝐫𝐚𝐝𝐞 𝐔𝐧𝐰𝐢𝐧𝐝* 𝐓𝐫𝐢𝐠𝐠𝐞𝐫𝐞𝐝**: Investors who borrowed in yen to invest in higher-yield currencies are now closing out these positions. Selling off other currencies to buy back yen puts upward pressure on the yen's value. - **📉 𝐆𝐥𝐨𝐛𝐚𝐥 𝐑𝐚𝐭𝐞 𝐓𝐫𝐞𝐧𝐝𝐬**: Expectations that U.S. and other central banks may slow or pause rate hikes have weakened other currencies against the yen, making carry trades less lucrative and sparking a reversal. - **🌐 𝐑𝐢𝐬𝐤 𝐀𝐯𝐞𝐫𝐬𝐢𝐨𝐧 𝐢𝐧 𝐌𝐚𝐫𝐤𝐞𝐭𝐬**: Economic concerns, especially around China and global growth, have driven investors to safer assets. This has intensified the move out of riskier carry trades and back into yen. In essence, carry traders are closing positions, which strengthens the yen against other currencies 📈💹 Please follow me for more Updates ARYAN JHA

JPMorgan Says Unraveling of Carry Trade Is Only Half Complete We aren’t done by any stretch, says global FX strategy co-head The moves comes amid fears of US recession, Japan rate hike By Matthew Burgess (Bloomberg) -- The recent unwinding in carry trade has more room to run as the yen remains one of the most undervalued currencies, according to JPMorgan Chase & Co. “We are not done by any stretch,” Arindam Sandilya, co-head of global FX strategy, said on Bloomberg TV. “The carry trade unwind, at least within the speculative investing community, is somewhere between 50%-60% complete.” The trade has been pummeled this past week as yen volatility jumped amid fears of a looming US recession and the Bank of Japan’s rate hike. 

In a surprising turn of events, the Bank of Japan (BOJ) made headlines today with a major policy shift that defies market expectations. For the first time since 2008, the BOJ has raised its interest rates and outlined a gradual plan to taper its extensive bond-buying program. This move represents a significant step towards winding down a decade of extraordinary monetary stimulus, signaling a new phase in Japan’s economic strategy. https://bit.ly/3LPc04Q

Today in financial markets - Hedging available on all Major pairs 1.2830 £/$ 1.1860 £/Euro 1.0820 Euro/$ 152.15 $/Yen Bank of Japan Raise Rates, Fed Decision Next Overnight the Bank of Japan have taken the decision to increase rates for only the 2nd time since 2007. They hiked by 15bps and have also confirmed their intention to half bond purchases by 2026. The Japanese yen has already been strengthening ahead of today's announcement. It's seen gains of 10+ yen against both the pound and US dollar in recent weeks as traders and dealers began to price in a hawkish policy move. Today's key focus will come from the US tonight where it's time for another Fed policy decision. No rate cuts are expected today from Jay Powell but it's likely the central banker will provide some form of basic guidance towards a particular month that the Fed perceive could be the starting point for their loosening cycle. As a result, the greenback will be firmly in the spotlight today.