On August 5, 2024, on the streets of Tokyo, a pedestrian walked past the display board showing the morning data of the Tokyo Stock Exchange.
Richard A. Brooks | AFP | Getty Images
Quick uninstall”arbitrage trade” extended on Monday, as market participants sought to abandon the popular strategy amid market turmoil. Sharp global sell-off in risky assets.
A carry trade is an operation in which investors borrow money in a low-interest-rate currency, such as the Japanese yen, and reinvest the proceeds in higher-yielding assets elsewhere. This trading strategy has become very popular in recent years.
traditional safe haven assetsThe yen, Swiss franc and others surged on Monday, boosting guess Some investors are looking to quickly sell off profitable carry trades to cover losses elsewhere.
“You can’t unwind the largest carry trade the world has ever seen without breaking some heads,” Kit Juckes, chief currency strategist at Societe Generale, said in a research note released on Monday. .
On April 29, 2024, on a street in central Tokyo, a man looked at the window of a money changer, which displayed the exchange rates of various currencies against the yen.
Richard A. Brooks | AFP | Getty Images
Jax said the latest batch of weaker-than-expected U.S. economic data, including labor market report Friday’s manufacturing data and some other soft indicators sparked a “huge reaction” in a thin August market.
“That’s an easy one to understand. The harder question is what happens next,” he added.
Juckes pointed out that the biggest reaction in the foreign exchange market is still to “lighten positions.” He said long positions in the Australian dollar, pound, Norwegian krone and U.S. dollar against the yen had all been cancelled.
Juckes said a drop below $140 for the yen against the dollar “would be unsustainable” in the short term given the impact on stocks and inflation.
Consultants say yen ‘carry trade’ is not dead
The yen has risen sharply against the dollar in recent weeks, reaching 143.57 yen per dollar at 3:10 pm London time on Monday. This is in stark contrast to the eve of the July 4th U.S. holiday, when the yen fell to $161.96 for the first time since December 1986.
In addition to weak U.S. economic data, Stock market plunges in August Disappointing earnings for major technology companies and a more hawkish Bank of Japan added to the situation. Variety Japanese monetary policy prompt a strategist warn The yen carry trade “collapsed” in the short term.
In addition, Russell Napier, co-founder of the investment research portal ERIC, said: explain In his recent “Solid Fundamentals” macro strategy report, investors now understand the impact that changes in Japan’s monetary policy may have on U.S. financial markets.
Ed Rogers of Rogers Investment Advisors said that despite the deepening stock market sell-off, the yen carry trade is not dead yet.
“I think there’s definitely going to be some brief panic in the yen carry trade. I don’t think it’s over. I don’t think it’s dead,” Rogers told CNBC’s “Asia Roadmap” on Monday.
“There are still significant interest rate differentials to exploit, but … we can say that a lot of people are looking to cover existing positions and the yen carry trade is probably one of the ones that people are scared of,” he added.
What should investors pay attention to?
Peter Schaffrik, global macro strategist at RBC Capital Markets, said on Monday that credit spreads should be top of mind for investors in the coming weeks.
“I would also say that people generally thought in the summer that these positions would do well. It’s any type of carry trade, say credit or sovereign markets…Bond volatility has been rising, so how far will they go? Shavelik told CNBC’s “European Roadmap.”
He added: “I think people generally come across these things when they’re looking forward to a quieter period, but now we’ve got everything. It’s something to be aware of.”
