BOJ is ending negative rate in March or April...For Savvy Investors like Boss John, Yen Carry Trade how ?

[k1976]

World’s Last Negative Rate Experiment Nears Its End in Japan​

• Economists and bond traders see hike coming in March or April
• Verdict on negative rates mixed; weaker currency a key benefit

Subscribe
Economics
Central Banks

World’s Last Negative Rate Experiment Nears Its End in Japan​

• Economists and bond traders see hike coming in March or April
• Verdict on negative rates mixed; weaker currency a key benefit

The Bank of Japan Governor Kazuo Ueda is forecast to raise the short-term rate from -0.1% either next week or in April in what would be the first rate hike in Japan since 2007.

Photographer: Akio Kon/Bloomberg
By Toru Fujioka
March 11, 2024 at 11:30 AM GMT+8


The Bank of Japan is widely expected to scrap the world’s last negative interest rate in the coming weeks, marking the closing act of global central banks’ grand experiment with unorthodox policies.
Governor Kazuo Ueda is forecast to raise the short-term rate from -0.1% either next week or in April in what would be the first rate hike in Japan since 2007, according to economists and bond traders.

 

[k1976]

https://www.alt21.com/hedge-glossary/japanese-yen-carry-trade/#:~:text=A carry trade is a,is the Yen — Japan's currency.


carry trade is a type of foreign exchange trade in which you borrow money in one currency at low interest and use it to make high-interest investments in another currency. As the name suggests, in a Japanese Yen carry trade, the currency you borrow in is the Yen — Japan’s currency.

Imagine a Japanese bank was offering loans at 1% interest a year.

You borrow ¥6,000,000.

To make the carry trade, you then exchange your ¥6,000,000 for $55,000 which you invest in US bonds that yield 5% a year.

This means you stand to make a profit of 4% a year after settling the debt.

Carry trades have two main benefits.

Firstly, they can generate steady returns.

Secondly, if enough people make the same carry trade, the returns can increase exponentially.

This is due to the laws of supply and demand. The more demand there is for a high-interest investment in a given currency, the more valuable the currency and the investment will become.

Yen carry trades are especially popular because Japan’s interest rates have been extremely low for a long time. This means you can borrow money cheaply and use leverage to maximise your profits.

The flipside is that carry trades can quickly lead to big losses if the currency you borrowed in increases in value or the currency you invested in decreases in value. This is because you’ll earn lower returns and it’ll cost more to exchange money back to the currency you borrowed in to pay off your debt.

 

[k1976]

https://www.japantimes.co.jp/business/2024/03/02/markets/yen-carry-trade-in-flux/

Yen’s carry-trade reign in flux as BOJ hints at policy shift​

An electronic board shows the rate of the yen versus the U.S. dollar in Tokyo on Feb. 26. | AFP-JIJI
BY ANYA ANDRIANOVA AND CARTER JOHNSON
BLOOMBERG
SHARE
Mar 2, 2024

One of the most popular trades in foreign-exchange markets is losing its luster as the Bank of Japan signals the end of its negative interest rate policy.

The appeal of using borrowed yen to buy securities denominated in higher-yielding currencies, known as a carry trade, is in flux after remarks this week from the BOJ’s Hajime Takata hinted at a potential policy change. That’s giving pause to money managers, especially now that leveraged funds have boosted their bets against the yen to the most in more than six years.

 

[k1976]

The first move — and how they signal the pathway — is very important,” said Salman Ahmed, Fidelity International’s global head of macro and strategic asset allocation. "If you have a negative shock, then the unwind can be quite vicious because there’s so much positioning on that trade.”

As speculation builds that the BOJ will change its path, so does the potential for the yen to strengthen. After Takata said that Japan’s price target was "in sight,” the currency jumped. The yen climbed nearly 1% to ¥149.21 per U.S. dollar Thursday, its strongest level in more than two weeks, before paring the advance.

Thursday’s yen gains are emblematic of the risk carry traders — and yen bears — are taking: Investors suddenly fleeing their short positions stands to exacerbate a sharp move higher in the yen.

Leveraged funds have turned the most bearish on the yen since early 2018, according to data from the Commodity Futures Trading Commission as of Feb. 27.

"There’s just not enough juice left in the squeeze,” said Peter Vassallo, a portfolio manager at BNP Asset Management. "I don’t like it mainly because there’s this left-tail risk of when people do start to unwind, there could be a big rush to the exit.”

 

[k1976]

For carry traders, it’s a balancing act. Top BOJ officials in the past have said it’s hard to see the bank raising its policy rate continuously and rapidly even after the negative interest rate is ended. Plus, the yen has been underperforming its Group-of-10 currency peers for more than a year, so it’ll likely take more than a rate hike to wipe out its carry appeal altogether.

That leaves investors to weigh the carry strategy — which flourishes in a low-volatility environment — while interest-rate gaps are still present. Using the Swiss franc to fund the wagers has emerged as one strategy this year as slowing Swiss inflation has curbed the need for the central bank to prop the currency up.

The yen-funded bet handed investors returns of more than 35% against the Colombian, Chilean and Mexican pesos last year, and it’s up 4.5% so far in 2024.

To Kit Juckes, chief FX strategist at Societe Generale in London, rising debate surrounding a BOJ shift is likely to spur a change in money manager positioning.

"The speculative end of the market remains very short yen,” he said. Juckes sees recent official comments as an effort to keep traders from being too surprised by an eventual hike. The remarks may "nudge market positions now,” he said.

The next key test will come as BOJ policymakers convene on March 18 for a two-day meeting to lay out the path of policy ahead. While a substantial change at that meeting "is not impossible,” it would potentially be too early, said Tom Fitzpatrick, managing director of global markets insights at R.J. O’Brien & Associates.

Plus, a sustained move in the yen against the greenback would ultimately come down to a smaller gap between the BOJ and U.S. Federal Reserve’s policies. To Fitzpatrick, that will likely require Fed rate reductions, in addition to a Japanese shift.

"We continue to believe that the BOJ’s imminent policy shift away from loose policy settings will help to provide more support for the deeply undervalued yen,” wrote Lee Hardman, foreign-exchange strategist at MUFG, in a Thursday note. "However, it will also require the Fed to begin lowering rates to narrow the policy divergence with the BOJ.”

 

[k1976]

The one risk I worry about': Bond expert says Japan hiking cycle could spark a decade of repatriation​

PUBLISHED FRI, SEP 22 2023 12:37 AM EDTUPDATED FRI, SEP 22 2023 5:00 AM EDT

Clement Tan
@CLEMTAN@IN/CLEMTAN
WATCH LIVE

KEY POINTS

• If dollar-yen weakens beyond 150 per dollar, BOJ may tighten policy sooner than the markets are expecting, JP Morgan Asset Management Bob Michele told CNBC.
• The normalization of Japanese government bond yields may spark a decade-long repatriation of Japanese capital parked in foreign assets.

The Bank of Japan could be forced into hiking rates sooner than expected if the Japanese yen weakens beyond 150 to the dollar, according to Bob Michele, global head of fixed income at JP Morgan Asset Management.

Higher rates could then unwind the yen carry trade and spark a return of Japanese capital to its domestic bond markets, a move that could trigger market volatility, he said.

https://www.google.com/amp/s/www.cn...orce-boj-tightening-sooner-than-expected.html

 

[k1976]

https://www.businesstimes.com.sg/co...n-see-euro-challenging-yen-carry-trade-funder

Goldman, JPMorgan see euro challenging yen as carry-trade funder​

Published Sun, Jan 28, 2024 · 5:46 pm

Goldman Sachs and JPMorgan Chase & Co are recommending borrowing the euro to buy riskier, higher-yielding currencies. Money managers at Allspring Global Investments and Ninety One Asset Management favour the trade against emerging-market currencies, while Allspring is also betting that the euro will fall against the US dollar.

Those convictions got a boost last week as European Central Bank (ECB) President Christine Lagarde ended up opening the door to earlier cuts, helping the euro notch the worst weekly performance of its Group-of-10 (G10) peers. The key rate in the euro area is expected to end 2024 as low as 2.5 per cent

Hamburger​

• SUBSCRIBE
• LOGIN

Companies & Markets​

Banking & Finance​

Reits & Property​

Energy & Commodities​

Telcos, Media & Tech​

Transport & Logistics​

Consumer & Healthcare​

Capital Markets & Currencies​

Goldman, JPMorgan see euro challenging yen as carry-trade funder​

Published Sun, Jan 28, 2024 · 5:46 pm

European Central Bank President Christine Lagarde’s acknowledgment on Thursday (Jan 25) of stumbling economic growth, cooling wage pressure and continued disinflation was all traders needed almost fully price a quarter-point cut in April.

PHOTO: AFP

Euro​

LOOMING European interest-rate cuts have set the euro up as a prime candidate for funding carry trades, adding further pressure on the common currency.
Goldman Sachs and JPMorgan Chase & Co are recommending borrowing the euro to buy riskier, higher-yielding currencies. Money managers at Allspring Global Investments and Ninety One Asset Management favour the trade against emerging-market currencies, while Allspring is also betting that the euro will fall against the US dollar.
Those convictions got a boost last week as European Central Bank (ECB) President Christine Lagarde ended up opening the door to earlier cuts, helping the euro notch the worst weekly performance of its Group-of-10 (G10) peers. The key rate in the euro area is expected to end 2024 as low as 2.5 per cent, compared with 4 per cent for the US.

The euro’s emergence as a popular funding currency may have far reaching consequences.


Over the past two years, sub-zero interest rates at the Bank of Japan (BOJ) meant it cost less to borrow yen, and drove the currency to the lowest in decades. But as traders grow more confident that a hike is coming, they’re looking for alternatives.

“The euro faces a number of stiff headwinds” including Germany’s stuttering economy and weak private-sector activity, said Kamakshya Trivedi head of global currency, rates and emerging-market strategy at Goldman Sachs.

“It remains an attractive funding option.”
Despite insisting her stance on rate cuts was unchanged, Lagarde’s acknowledgment on Thursday (Jan 25) of stumbling economic growth, cooling wage pressure and continued disinflation was all traders needed almost fully price a quarter-point cut in April.

 

[k1976]

https://www.channelnewsasia.com/bus...20-trillion-carry-trade-deutsche-bank-3919416

Japan's government debt is a US$20 trillion 'carry trade': Deutsche Bank​

TOKYO: Japan's government is engaged in a massive US$20 trillion "carry trade" - the funding of loans and foreign assets by borrowing low-cost yen - that could bring unexpected risks if the central bank tightens policy, Deutsche Bank analysts warn.

Using research by the San Francisco Federal Reserve and International Monetary Fund, Deutsche's head of currency research George Saravelos analysed a consolidated balance sheet of the Japanese government including the government-run pension fund GPIF, the Bank of Japan (BOJ), and state-owned banks, showing the asset-liability mix of its US$20 trillion debt.

 

[k1976]

ADVERTISEMENT​

Business

Japan's government debt is a US$20 trillion 'carry trade': Deutsche Bank​

The logo of Deutsche Bank is seen in Brussels, Belgium, on Dec 6, 2022. (Photo: REUTERS/Yves Herman)

Listen to this article
1 min
This audio is generated by an AI tool.
14 Nov 2023 06:37PM (Updated: 14 Nov 2023 07:14PM)
BookmarkShare

TOKYO: Japan's government is engaged in a massive US$20 trillion "carry trade" - the funding of loans and foreign assets by borrowing low-cost yen - that could bring unexpected risks if the central bank tightens policy, Deutsche Bank analysts warn.
Using research by the San Francisco Federal Reserve and International Monetary Fund, Deutsche's head of currency research George Saravelos analysed a consolidated balance sheet of the Japanese government including the government-run pension fund GPIF, the Bank of Japan (BOJ), and state-owned banks, showing the asset-liability mix of its US$20 trillion debt.

ADVERTISEMENT​

That debt, Deutsche Bank found, amounts to an enormous "trade" invested abroad at high interest rates and funded by low-rate, short-term borrowing in yen.

As expectations grow for the Bank of Japan to exit its ultra-loose monetary stance, Deutsche Bank's report says it is crucial to understand the potential consequences of this huge trade, not only on the government's balance sheet but on savings and assets held by households.

The yen has traditionally been a favourite funding currency for carry trades because of Japan's low interest rates, and market participants expect investors globally to unwind hundreds of billions of dollars of such trades if and when the BOJ exits its ultra-easy monetary policy.

Deutsche Bank's report extends that scenario to include the Japanese government and its balance sheet.

With real rates kept low via the central bank's negative rates policy, the government has found fiscal space, enabling it to run public debt above 200 per cent of GDP while financing one-third in overnight cash, the report said.