Like Kevin said, with JPY/USD futures you have indirect exposure to the U.S. risk-free rate with an amount of the notional value of the currency futures. The question is, do you really want carry exposure. The interest rate differential is still large; but I hear that the Yen is fundamentally undervalued by most measures.
You got the rare, for this hellsite, high quality response, by the perspicacious KS. It went over your head. That can happen. Consider that you may not be ready to embark on carry trades, which have risks in the components that must be understood and hedged well beyond the interest rate differential. The US is in a rate lowering phase, eroding this trade. In addition, say, we get a global risk-off event, the yen strengthens, and/or BoJ raises. The trade relies on stability or depreciation on the low yielding (yen) side that reasonably may not be expected when the whole is well understood. These trades tend to be highly leveraged making them more sensitive to unplanned/unforeseen events.
Lol. What measures would those be? Out of control debt. Continuing to run a deficit. Largest chunk of that debt held as "backing" to the value of their currency by BOJ Declining population Interest rate lower than other major countries virtually guaranteeing future decline in value of currency I'm legitimately curious as to what measures would say that the yen is undervalued.
I was thinking about that. Any instrument tracking Nikkei 225 with European options? Edit: found it https://www.jpx.co.jp/english/derivatives/products/domestic/225options/01.html
I can't speak to it for lack of qualification; perhaps it is "undervalued" based on purchase power parity. There are smarter people who came up with this; although obviously you could argue the market price is what "they" (the market participants) deem fair value. Currency exchange rates are a science in themselves.
Name something I can buy cheaper by going to Japan and buying it in yen. https://www.numbeo.com/cost-of-living/country_result.jsp?country=Japan&displayCurrency=USD Japan is deliberately suppressing the exchange value of their currency by running a deficit and keeping low interest rates. That doesn't actually mean items are actually for sale to the Japanese people in Japan at a low price. It just means their workers are getting crushed by being paid in a rapidly depreciating currency. Retailers in Japan are not idiots, they're still going to charge replacement cost + profit when they sell their goods. And raw materials are going to cost whatever the international market says. As far as I can see, they're just suppressing their currency to keep exported goods from Japan cheaper. Why would happen to Toyota, Nissan, Honda, and Mitsubishi if the Japanese currency was allowed to appreciate, given that they have to face competition from Kia, Hyundai, etc? Do you look at real estate prices in Tokyo and think "What a deal!"? I'm willing to listen to arguments but I need more than the equivalent of some bozo like Cramer saying "Bear sterns is fine". I'm sure there's someone somewhere saying. It going to go up.
Japan is doomed long term. They simply can not get off ZIRP, doing so would bankrupt them so the Yen will only continue to weaken. It will be 250 in a couple of years. No way they can raise rates required to stave off inflation, so the public will continue to get fucked by the Oligarchs like they have been since 1990. All because they refuse to admit their mistakes and take equity write downs.
From my perspective, the carry trade only works via futures for smaller traders when there is a modicum of stability in the overall situations of both Japan and the US. Right now, we have a potentially quite turbulent US election period ahead, the Middle East chaos could blow up oil prices, which have a major impact on US Treasury rates due to inflation expectations. US yields just about always heavily impact the Yen exchange rate. The flight to safety aspect of the Yen at times still holds water in actual price action as well. In sum, there are plenty of reasons why the risk management team at CME recently hiked up the margin requirements for J6 yen futures! Too many conflicting energetic vectors coming from too many various directions right now to enter into the carry trade. To me using J6 futures would be rather like trying to pick up pennies in front of an advancing steamroller.
for an individual whale, carry trade is still a good funding source, provided that he can assess or execute an isda paug pas with a counterparty. in the near term jpy interest rate will remain low because they have a very large debt ratio, can’t afford to pay higher interests.