Over the past few months, a pattern I’ve been tracking for a while began to crystalise with increasing clarity. This publication is not a victory lap but an opportunity to check the pulse of the Yen Carry Trade dynamic that I’ve long articulated.
So if I have this right - most of the money controlling global assets comes from the Yen carry trade? People borrowing 0% yen, investing in dollar denominated assets (leverage - risk on appetite). If the dollar strengthens against it, dollar denominated assets now represent risk (value is falling against yen) so they need to deleverage (sell - risk off appetite). Something like that? that means BOJ's inflation forecast and interest decisions are more important than the Feds! Do I have this down? Strange because Strong Yen would also mean you can buy MORE dollar assets for less Yen. That would also cause demand for dollar assets... in theory. This sides with the base case - weaker dollar better for risk on. What am I missing? It seems the Yen carry trade outweighs this? Or only under a particular time frame e.g. short time frame?
Stronger Yen increases borrowing costs on the loan, affecting the risk return ratio. Not sure if you've read the other publications where I explained all of this...
So if I have this right - most of the money controlling global assets comes from the Yen carry trade? People borrowing 0% yen, investing in dollar denominated assets (leverage - risk on appetite). If the dollar strengthens against it, dollar denominated assets now represent risk (value is falling against yen) so they need to deleverage (sell - risk off appetite). Something like that? that means BOJ's inflation forecast and interest decisions are more important than the Feds! Do I have this down? Strange because Strong Yen would also mean you can buy MORE dollar assets for less Yen. That would also cause demand for dollar assets... in theory. This sides with the base case - weaker dollar better for risk on. What am I missing? It seems the Yen carry trade outweighs this? Or only under a particular time frame e.g. short time frame?
Stronger Yen increases borrowing costs on the loan, affecting the risk return ratio. Not sure if you've read the other publications where I explained all of this...
Cool stuff 😎
Thank you Sonny. Great article. I’ve only just begun studying the yen carry trade and how it affects BTC. 😎🫡