USD/JPY to the Moon
- Thread starter schizo
- Start date
Everything is revolving around the strength of the dollar at the moment. Also the dovish BOJ is aggravating the situation. Currently, 10 year Japanese bond = 1% and US10 = 4.7%. Hence, everyone is chasing after the yen carry trade, which is driving down yen further.
Image you held 3X GDP in JPY denominated 0% 15 year notes...
(I couldn't easily find stats on the term of the debt.)
If rates rise to 5% those existing notes are only worth about half what they were before. So theoretically raising rates is supposed to increase the value of a currency, but when the central bank holds most of the outstanding debt, it means that the central bank takes a huge, instant hit to its balance sheet.
Then you gave the issue where a huge chunk of their stock market is also government held and you'll have a similar hit to the value of stocks.
Finally, the government is still running a deficit. Borrowing at 5% for that is going to hurt.
I suppose they have a sizeable amount of us treasuries, they could sell those and buy yen. Short term bump. Still if I was trying to value the yen, I would rather see them hold that positive yielding USD debt than 0% JPY debt or JPY cash.
I must be missing something because I never thought they would get away with keep rates at zero for so long in the first place.
(I couldn't easily find stats on the term of the debt.)
If rates rise to 5% those existing notes are only worth about half what they were before. So theoretically raising rates is supposed to increase the value of a currency, but when the central bank holds most of the outstanding debt, it means that the central bank takes a huge, instant hit to its balance sheet.
Then you gave the issue where a huge chunk of their stock market is also government held and you'll have a similar hit to the value of stocks.
Finally, the government is still running a deficit. Borrowing at 5% for that is going to hurt.
I suppose they have a sizeable amount of us treasuries, they could sell those and buy yen. Short term bump. Still if I was trying to value the yen, I would rather see them hold that positive yielding USD debt than 0% JPY debt or JPY cash.
I must be missing something because I never thought they would get away with keep rates at zero for so long in the first place.
What always amazes me is the sheer timing of these moves. Did BOJ wait until the price went up to 160 before making their announcement? How does it always match up with the price expectation? Everyone's been saying for days about 160.
So now, 95% chance we revisit 160 to see if their powder is still dry.
I dunno. It would be an uphill battle, especially if the BOJ is holding the torch.