Is the yen carry trade back? 149.50 is the tilting point

8월 16일

So the yen carry trade was partially unwound two weeks ago. There is still 2.5 trillion to unwind. The first portion of the trade was the most volatile as it dealt with the margin call customer. The second part of the trade is going to be unwound over the next several months. This is due to asset managers and banks that have arbitraged the yen and invested in assets with little leverage. The last trillion or so are Japanese/asian banks/Governments that invested heavily in USA treasuries and us economy. Japan is the largest foreign holder of our debt. So… as the dollar was devalued against the yen due to BOJ actions, this trade was unwound at all levels. You saw it two weeks ago in the market. You can already see it in our foreign bond investment was dropped by 75% month over month. Japan is no longer investing in our treasuries since their economy is stronger. This is putting stress on our treasury auctions. Look out for next weeks 20 year bond auction. This could create a sell off if it’s weak.

But what is the point at which the yen carry trade could wind back up? Well… we saw it today. As the dollar strengthened today, the yen started to crumble again because the prime minister has issues. The dollar to yen jumped to 149.50 up from 146 just 3 days ago. This is serious. If it jumps over 150 and holds, the most risky types of groups will engage in the yen carry trade AGAIN! This will cause an immediate surge in our capital markets. Our large cap stocks will run creating a bubble larger than we have now. There is a 4 week window until the fed cuts rates. So it’s a possible 4 week party. As our economic news continues to improve and the dollar strength continues against the yen and peso, we could see a 10% surge. Now, what this means is a crash of epic proportions is waiting at the end of September. Keep an eye on the dollar to yen. If it jumps over 149.50 to 150….. green green green. If it drops down to 143 or 144 like it did 2 weeks ago, then red red red. There is a 70% chance of a correction of 40% or more before year end.