August 07, 2024
The 'Yen Carry Trade'
Steven Chase
Japan held its rates at or near 0% for 15 years. As such, investors began borrowing trillions of yen and investing them in stronger currencies and assets. Essentially, it was a bet that the Yen would continue to fall in comparative value. It worked well...until last Wednesday.
Japan's central bank finally hiked rates a bit, just to .25% which is still insanely low, but it spiked the value of the yen by 7.5% compared to the US$ and forced investors to cover their short positions to the tune of billions. Creating enormous losses. Trillions?
This was called the "yen carry trade." It appears to have ended this week. To cover those losses, it requires liquidity, and liquidity is achieved by selling off other performing assets. Hence, the global sell off.
Japan held its rates at or near 0% for 15 years. As such, investors began borrowing trillions of yen and investing them in stronger currencies and assets. Essentially, it was a bet that the Yen would continue to fall in comparative value. It worked well...until last Wednesday.
Japan's central bank finally hiked rates a bit, just to .25% which is still insanely low, but it spiked the value of the yen by 7.5% compared to the US$ and forced investors to cover their short positions to the tune of billions. Creating enormous losses. Trillions?
This was called the "yen carry trade." It appears to have ended this week. To cover those losses, it requires liquidity, and liquidity is achieved by selling off other performing assets. Hence, the global sell off.
Posted by: Timothy Birdnow at
09:42 AM
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