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Unwinding Of Yen Carry Trade

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Interesting piece suggesting that Japanese expansion heralds shocks through global markets. If BoJ IRs rise the yen carry trade will unwind and positions based on it will be abandoned.

http://quote.bloomberg.com/apps/news?pid=1...id=a0gK4Vt__cBU

I know this possibility has been mentioned on this board before but this is the first time I personally have seen it raised in more mainstream media commentaries. (Though of course I might have missed it).

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Get ready. the next few month are going to see some major changes in volatility. the free money loans that have be pumping up the worlds asset prices, are about to get called in. you have a few months max to get a hold of as much yen as possible and get short of as many overvalued assets as possible, before every hedge fund in the carribean wants your yen ;)

get Yen before the hedgeis do.

"Speculators might suddenly close positions that are becoming more expensive: dumping Treasuries, gold, Shanghai real estate, shares in Google or whatever else they used yen borrowings to bet on. The chain reaction would accelerate once the mainstream media jumped on the story"

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Is this a buy signal for the Nikkei--badly beaten down over the last couple of weeks but in recovery mode?

Nikkei was around 40,000 and is currently around 16,000 which may suggest there is a lot of room for the recovery.

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not the N225 imho for the time being.

Japan will hurt from the appreciation, but they look like they can survive it this time. id look to buy more N225 or IJPN.L after the dust settles

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first there was nothing all was quiet in the world of money. the Japanese bought stuff sold stuff borrowed and all was well in the world of money.

then one day they stopped borrowing stuff and started to all pay back all their debts. this caused prices to go down and everone to start saving. the central bank did not like this so they declared all money free and started lending Yen at a 0% interest rate. this really was the Big bang of global liquidity and started the Great inflation of the universe of money trillions upon trillions of Yen were borrowed from the Bank of Japan. and this continued for years and years and years. until the known universe of money was so large and so vast that the users of the money had no way to comprehend the vast riches that lay before them. the Yen seeped into all other forms of money into commodities, houses stocks everywhere.

People started to talk they said that vast money would never be paid back that it would end with money becoming so inflated and diluted that it would be worthless. best buy gold they said the inflation of the universe of money will never end they said.

Then one day the Bank of Japan realised that people were borrowing money again. hey lets raise interest rates they said. and so it began. the reverse of the great inflation swiftly and quickly like a Quadrillion guided missiles the Yen started to come back from whence it came. and in the end game the money came heaving and spluttering down back into the Singularity from which it came.

And they all lived happily ever after ;)

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certainly if you could convert your Salary into Yen at the current 205 yen per pound rate then in the last 10 years only in 1998 (the year just before LTCM) would you have been assured of getting a better rate for your sterling. and bear in mind that Yen traded as high as 150Yen in 2001.

Edited by jonpo

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The Nikkei is taking a hell of a beating recently. Anyone know why apart from the threat that IR will start to rise? Surely a projected GDP of more than 5% would overcome the negativity created by the initial IR hikes?

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the currency play is where the gains will come from this year.

after all,lets face it,the central banks GLOBALLY are giving less people money to spend...including japan.

what japan has is a far greater amount of savings that have not been spent,and will get spent(probably by some crafty law-tweaking)......it's not going to be plain sailing by any stretch,but the risk is much lower.

...now,all that spare money sloshing around in pension funds HAS to be put to work somewhere,so it's possible that japan will take over the mantle from the US consumer in a few years.

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the currency play is where the gains will come from this year.

after all,lets face it,the central banks GLOBALLY are giving less people money to spend...including japan.

what japan has is a far greater amount of savings that have not been spent,and will get spent(probably by some crafty law-tweaking)......it's not going to be plain sailing by any stretch,but the risk is much lower.

...now,all that spare money sloshing around in pension funds HAS to be put to work somewhere,so it's possible that japan will take over the mantle from the US consumer in a few years.

In Japan there is truly massive private saving but also truly massive public debt. The governmemt can kill two birds with one stone not via interest rate rises (which would only increase its own debt servicing costs) but via an even more traditional route - increased taxes.

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All eyes on the Bank of Japan. Rate announcement tonight.

March 9 (Bloomberg) -- The Bank of Japan ended a five-year deflation-fighting policy, the first step to raising interest rates in the world's second-largest economy from zero percent.

Policy makers voted to cut the cash provided to lenders by as much as 82 percent to the minimum 6 trillion yen ($50.7 billion) legally required as reserves. The reduction will be made over several months and the bank plans to keep its benchmark short-term interest rate close to zero, the bank said in a statement today in Tokyo.

The shift is a sign Governor Toshihiko Fukui considers the economy is resilient enough to withstand an increase in interest rates as early as this year, raising the prospect of a conflict with the government. Prime Minister Junichiro Koizumi this week cautioned the bank against policy that might douse the longest period of postwar economic growth.

``The economy is out of the emergency room,'' said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. The Bank of Japan's ``intention is to keep interest rates as low as possible.''

The Nikkei 225 Stock Average rose 2.6 percent to 16,036.91 at the close in Tokyo. The yen fell to 118.26 against the dollar from 117.70 before the announcement.

The bank today said it would be desirable to keep consumer price rises within a range of zero percent to 2 percent when setting monetary policy. The bank referred to the measure that excludes energy and food, widely used in the U.S. and Europe to measure inflation, rather than core consumer prices, which exclude only fresh food.

`Symbolic Step'

``The BOJ policy shift marks a symbolic step toward the normalization of the Japanese economy,'' said Teizo Taya, an adviser to Daiwa Institute of Research who helped form policy as a central bank board member five years ago. ``The central bank will eventually move to raise short-term rates from zero, and that's a necessary process for Japan to achieve sustainable economic growth.''

Higher interest rates will raise returns on deposits, increasing household wealth, and boosting lending rates at banks, according to Kathy Matsui, chief strategist at Goldman Sachs (Japan) Ltd. in Tokyo. Reports yesterday showed Japan's banks in February increased lending for the first time in more than nine years and the nation's broadest measure of future economic activity had its first back-to-back gain in seven months.

Growth Constraint

``These indicators are suggesting a pickup in economic activity over the next few months now that the monetary constraint on growth has been lifted,'' said Carl Weinberg, chief economist at High Frequency Economics. ``Hooray.''

The policy change indicates Fukui and his colleagues are confident Japan's economic expansion will be sustained after three recessions in 15 years. Core consumer prices, which exclude fresh food, rose for the third month in January. Sustainable increases in prices were a condition that had to be achieved for the bank to consider a policy change.

The government has been concerned a change in policy may result in higher bond yields, increasing interest payments on public debt, which at 150 percent of the economy, is the biggest in the industrialized world. The yield on Japan's 10-year bonds was trading at 1.605 percent at 2:58 p.m. in Tokyo, up from 1.455 percent at the start of the year.

Political Pressure

Koizumi on March 6 urged the bank to ``make a careful decision'' at today's meeting. He referred to the bank's 25 basis points rate increase from close to zero in August 2000, which was reversed seven months later following the collapse of the Internet bubble.

The central bank also said it is ``highly'' possible that its monetary policy will remain accommodative and interest rates will stay at very low levels, if it judges that inflationary pressure are restrained.

The bank said it had judged the conditions that it had set to change policy have been fulfilled. The conditions were that prices rise for a few months, that the increases are sustainable and that they are accompanied by economic expansion.

The bank's action indicates it can resist political pressure and make independent policy decisions, said Masuhisa Kobayashi, chief government bond strategist at Barclays Capital Japan Ltd.

``Bond markets, which have looked at politicians in gauging the BOJ's actions, should shift focus to the central bank itself,'' said Kobayashi said. The yield on the 10-year bond has fallen to 1.6 percent from a high of 1.73 percent on March 3, the day the government said January's core consumer prices rose 0.5 percent.

Since then the government has stepped up its campaign, with Hidenao Nakagawa, head of the ruling Liberal Democratic Party's policy research council, yesterday saying that the bank should be responsible for the results of its policies.

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the tide of global liquidity has turned.

Time to wait and see what gets washed out with it ;)

(evidently a bubble in Treasuries if the last few days are anything to go by)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
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      • up 5%



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