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- Carry Unwind Paused, Not Finished
Carry Unwind Paused, Not Finished
Rapid yen appreciation takes a breather, settling at 144/dollar as markets take stock of the Fed's rate cut outlook.
Mobius Intel Brief:
As warned before last Wednesday’s Bank of Japan policy meeting, economic uncertainty and narrowing yield differentials are potent risks for the world’s most popular carry trade. Friday’s above-expectations U.S. unemployment data proved to be the catalyst for yen-funded carry unwind and rapid yen appreciation, with the follow-on effects apparent in global market performance between Friday and Monday.
Today’s stabilizing yen and rebounding equities indicate investors’ immediate recession fears have eased. However, the magnitude of carry trades outstanding suggests unwind risks have more room to expand.
Intel Brief Outline:
Yen-funded carry unwind, week-on-week FX impact
Leveraged fund managers’ yen positioning
The volume of international yen borrowing since 2021
BOJ incentives for yen appreciation
Changes to U.S.-Japan and U.S.-Switzerland yield spreads
Near-term risks to watch, including the primary drivers of more yen appreciation