About the carry trade.... (Yen/Japan market domino)

[Voodoo]

Hey, WHAT"S ALL that shaking in Japan again? Calm the F down would you?

 

[nickndfl]

Japan was selling USTs to support the yen, but it didn't work. That's where it's going to start. The ruble is still the strongest currency in 2025.

 

[Voodoo]

Still extending today on their 40 years... 3.515%... Personally, my bid would be around hmmm 50%, maybe. Nah not for a 40 year, lol.

 

[Voodoo]

Actually the 10-year looks more interesting and coming under pressure. Getting towards the high end of the ascending Triangle on the third or I suppose that could be seen as the fourth touch given its a weekly chart.

 

[pmbug]

The interval pace for the BoJ to intervene is increasing. There appears to be a bit of stress in the system. Per Dario's comment:

... On Monday, the 5th of August 2024, the Japanese stock market came very close to a total implosion, and that would have dragged down with it many other major financial markets, especially the US one, as a result of the forced unwinding of hundreds of billions of USD in leverage linked to the JPY carry trade.
...

More:

HOW LONG WILL THE BOJ BE ABLE TO AVOID THE COLLAPSE OF A MAJOR FINANCIAL INSTITUTION? - JustDario

It’s summer, and many traders are already enjoying their holidays and stock portfolio gains, which are growing every passing day, regardless of the circumstances. No matter that the underlying economies are falling more and more into a dark hole, a larger number of people are struggling to make...

justdario.com

 

[pmbug]

...
Meanwhile the forex pair gets monkey hammered this morning. Maybe this is why...

Japanese yen surges as Ishiba wins leadership race to become next Japan prime minister

Traders were pricing in the possibility of Takaichi winning earlier before the run-off vote

www.forexlive.com

 

[pmbug]

 

[Voodoo]

So was that mostly a Yen move, a Gold move, or both?

 

[pmbug]

Yes.

 

[Voodoo]

Looks like a 1.5% move in Yen and 0.5% in Gold. So a little more a Yen move but still worth noting.

 

[Goldhedge]

Japan's wealth is returning to the homeland

Crypto commercial at 3:07-8:36 mark so cut ahead

Japan's Money Is Collapsing​

29m

 

[nickndfl]

I remember when it was 300-to-1 and down to 100-to-1. Now it is 160s going to 175.

 

[pmbug]

The US tried to save the yen without selling dollars. That lasted only until the intervention had to become serious.

Selling euros was the elegant version.

It allowed Washington to strengthen the yen without telling markets:

“America wants a weaker dollar.”

But that works only while intervention can stay small.

The carry system is too large for that.

Once USD/JPY pressure keeps building, defending the yen requires much bigger firepower. And eventually the US has to do what it initially tried to avoid:

sell dollars.

Policymakers are trying to keep the yen in an almost impossible zone:

weak enough to preserve the carry trade,
strong enough to prevent a Japanese currency crisis.

If the yen falls too fast, Japan imports inflation and loses control.

If the BOJ raises rates aggressively, the yen can rip higher and destroy leveraged carry positions globally.

If they intervene repeatedly, the size required keeps growing.

If they inject more liquidity, they preserve the leverage that created the vulnerability in the first place.

So the first move was about optics:

Sell EUR → buy JPY.
Protect the dollar narrative.

But once the pressure became too large:

USD itself had to become the ammunition.

That is why I think this is much bigger than an unusual FX intervention.

A reserve-currency system is healthy when its currency is the solution.
It becomes more fragile when policymakers are afraid of the consequences of selling their own currency, But eventually have no choice.

They can move the pressure around:

yen → euro → Treasuries → central-bank balance sheets.

They cannot eliminate it.

And if keeping the global carry structure alive requires progressively larger interventions, then what we are watching is not stability.

It is the system becoming increasingly expensive to stabilize.