Yen carry trade: breaking bad

As central banks and QE spirits encouraged yet one more round of levered speculation between 2012 and 2015, ‘hot money’ borrowed in Yen at rock bottom interest rates (and a weakening currency) and bought US denominated stocks and bonds (at higher yields in a strengthening currency). This looked like genius for a bit and helped to drive US asset prices from over-valued to ‘ludicrous mode’.  That was then.
Yen carry trade
In the spring of 2015, the Yen stopped weakening and began to increase once more against the greenback, much to the chagrin of Japanese policy makers hoping to depreciate the price of their exports through ‘Abe-nonsense’ initiatives.

With the Yen rising over the past year and counting, carry trade speculators are losing badly and having to sell US securities to buy back Yen and pay down Yen based margin calls as capital buffers evaporate.  A similar trigger served to accelerate selling in US markets in 2007 (red circle on left above).

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