Had a vision. BOJ surprise rate hike one month earlier than expected when they meet this week. This leads to an insane unwinding of carry trade which knocks down materials/oils and other high flying stocks (many of which that just went up 10% in a week) by 20% in 2 weeks. I don't know much about the Japan bank so really have no understanding of how likely such a move might possibly be. But that was my vision. Good luck with that and use this info as you see fit. Lol. In my vision, WNR trades $49, HOC trades $64, AKS trades $29 (after poor Q3 guidance), and BHP trades $56. XOM trades $79.
So in your dream did they raise by 3%? Thats about what it would take to hit the carry trade. Even if they surprised AND raised by a half (highly unlikely)it wouldn't even cause much of a ripple.
BOJ is not raising Talking about the unwinding of the Carry Trade, last time that happened the market fell very hard, I think about 40%-50% of this rally is due to the Carry Trade.
Why does everyone think the yen carry trade is no big deal, look at what happened last May of 2006 when the markets tanked for 2 months. That was liquidity drying up. Without the yen carry trade these markets would not be where they are today.
BOJ Will Probably Keep Rate at 0.5%; Economists Eye August Rise By Mayumi Otsuma July 10 (Bloomberg) -- The Bank of Japan will probably keep its benchmark interest rate unchanged this week as it awaits more proof that economic growth will be sustained and inflation will take hold. Governor Toshihiko Fukui and his policy colleagues will hold the key overnight lending rate at 0.5 percent at the conclusion of a two-day meeting on July 12, according to all 43 economists surveyed by Bloomberg News. The bank last raised the rate, still the lowest among major economies, in February. Fukui will probably postpone increasing borrowing costs for one more month so policy makers can assess the strength of economic growth in a report on gross domestic product in mid- August. The board may be reluctant to raise rates until after Upper House elections are held on July 29, though some members may propose an increase this week. ``The central bank will almost certainly leave rates on hold,'' said Julian Jessop, chief international economist at Capital Economics in London. Still, ``as many as three board members might go further and propose a hike now.'' Any dissent this week will spur expectations of an August increase because of a ``precedent'' in January, when three policy makers proposed raising rates in a move that preceded February's decision, Jessop said. Investors yesterday saw an 80 percent chance of a rate increase in August, up from 74 percent a week earlier, according to calculations made by Bloomberg News based on the exchange of interest payments provided by Credit Suisse Group. August Expectations ``Markets are steadily factoring in an August hike, which makes it easier for the central bank to move,'' said Teizo Taya, a former Bank of Japan board member and now adviser to the Daiwa Institute of Research. Some reports released in the past two weeks back the central bank's prediction that the economy's longest postwar expansion will be sustained. Confidence of major manufacturers held near a two-year high and Japan's largest companies plan to increase spending this fiscal year by 7.7 percent, the bank's Tankan survey showed on July 2. Machinery orders, a key indicator of corporate spending plans, expanded at triple the pace economists predicted for May, the government said yesterday. The jobless rate held at a nine- year low in May and household spending rose for a fifth month. ``BOJ policy makers will probably say the economy continues to develop in line with expectations'' when it reviews its half- yearly outlook on July 12, said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``If so, we must assume the bank remains committed to hiking rates every six months.'' U.S. Rebound A rebound in growth in the U.S., which buys a fifth of Japanese exports, is also good news for the central bank. The world's largest economy probably grew an annual 2.8 percent last quarter, four times faster than the previous three months, according to Blue Chip Economic Indicators. Other reports for May weren't so supportive. Japan's industrial production fell for a third month and consumer prices excluding fresh food slipped 0.1 percent, a fourth monthly drop. Fukui said in May that a rate increase is possible even amid falling consumer prices, as long as the bank is confident price gains will resume and growth will be sustained. Last week he reiterated that prices will rise in the long term after hovering near zero for now. ``The Bank of Japan has declared that it will implement monetary policy in a pre-emptive manner,'' said Akio Makabe, a professor of economics at Shinshu University. ``A small core- price decline won't deter any rate-hike decision.'' Second-Quarter GDP Japan's GDP probably slowed to an annual rate of 1 percent in the second quarter from 3.3 percent in the previous three months as exports and consumption lost momentum, according to the median estimate of 21 economists surveyed by Bloomberg News. The government will probably release the GDP data in the week before the bank's Aug. 22-23 policy meeting. ``The chance of a rate hike next month is pretty high unless the GDP numbers are negative,'' Daiwa's Taya said. This month's election also gives an incentive for the bank to wait until August, said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Securities Japan Co. ``No central bank in the world would raise interest rates just before a national election unless there are extraordinary reasons,'' Kanno said. ``It's not a matter of a central bank's independence.'' The bank will announce its rate decision on July 12, probably by early afternoon, and publish its monthly economic assessment and a mid-term review at 3 p.m. in Tokyo. Fukui will hold a news conference at 3:30 p.m.
Huh? Funds have been borrowing Yen to finance higher yielding shit for 25 years. When did you think this began. 2003? There's a zillion better places to spend Yen than in the U.S. There's ALWAYS a preferred set of "carry trades" in existence. Jeez the function of leveraged FX is to capture yield diffs. EuroYen (Tibor forwards) are anticipating +50bp over the next 9 months or so.
On the contrary it is a huge deal and when it starts to unwind it will be felt. My point was just that it isn't under threat from any small surprise hike from the BOJ. Given that Japan is still desperately trying to grow its way out of its debt (107% of GDP) it is unlikely that the BOJ raising rates will be the catalyst for the end of the yen carry. The unwinding will likely be precipitated by events outside of Japan. It is a trade I am monitoring for constantly along with most other traders I would imagine.
Will Japan Destroy the Yen to Save the Dollar? by Peter Schiff As the Japanese government continues holding short-term interest rates near zero while printing yen like it is going out of style, getting out of the yen has now replaced pachinko as the national pastime for rank and file Japanese. With housewives and cab drivers debating the best techniques to exchange their yen savings for higher yielding non-yen assets, the Japanese monetary authorities are facing the prospect of the complete destruction of their own currency, subjecting their citizens to the horrors of hyperinflation. For years, the storied efficiency of the Japanese economy has kept its citizens from understanding just how much purchasing power they were losing to inflation. As the extremely productive Japanese economy worked to lower consumer prices, the inflationary monetary policy of the BOJ reversed those declines, robbing Japanese consumers of the benefits of falling prices. This loss represents a massive subsidy to American consumers. However, inflation is about to get so out of control in Japan that prices will soon rise despite the natural forces that would otherwise have lowered them. As rising prices become impossible to ignore, perhaps the Japanese will borrow a page from the U.S. playbook and recalculate their CPI to hide the grim reality. However, with the carry trade kicking into high gear, such propaganda efforts will likely not succeed. The Japanese are pursuing this reckless monetary policy with the deliberate goal of creating inflation, and they are in danger of succeeding beyond their wildest dreams. Despite the tendency of central bankers to argue that consumers are better served by rising prices rather than falling prices, "deflation" was never a real threat to Japan. On the contrary, falling consumer prices are one of the natural rewards that people enjoy in market economies. The fact that this benefit has been denied to most people in modern times as a result of government created inflation is one of the great tragedies of our time. To spare its citizens from suffering the "scourge" of being able to buy products at lower prices, the Japanese are close to destroying one of the greatest savings hordes in history. The question is why are they doing it? The only logical answer I can offer is that the Japanese realize that if they stop the flow of global liquidity they will destroy the dollar and the U.S. economy. To survive, the U.S. must be able to both limitlessly exchange the dollars it prints for the goods the rest of the world makes and then pay low rates of interest on its IOU's that foreigners accumulate as a result. Were the Japanese to turn off the monetary spigot and raise interest rates to normal levels, Americans would not be able to do either. A real rate of interest on the yen would reverse the carry trade by creating demand for Japanese assets and diminishing demand for dollar denominated assets. Such a move would simultaneously send U.S. interest rates and consumer prices thought the roof and stock and real estate prices through the floor. The entire U.S. consumer economy would collapse and Americans would experience the greatest period of economic hardship since the Great Depression. This scenario apparently terrifies the Japanese, as they fear that such a severe recession in American means similar problems for Japan. However, their fears are misplaced as their real problem is the enormous cost of trying to prevent this from happening. Their fixation on what might happen to Japan if the American economy were to run off the rails has blinded them to the far greater costs of trying to keep in on track. Therefore, the Japanese need to carefully consider what they are doing. They need to ask themselves whether propping up the U.S. economy, merely delaying its inevitable collapse, is really worth the destruction of their own currency and the potential chaos that might create for their own economy? Do they really want to commit economic hara kiri just to keep their short-sighted vendor financing scheme going a while longer. Hyper-inflation would be the monetary equivalent of an atomic bomb. Will the Japanese really let us do it to them again? If they come to their senses soon, as they must do to avoid this fiasco, this time it will be the Japanese that drop the atomic bomb on us! Peter Schiff C.E.O. and Chief Global Strategist