About the carry trade....

foolsgold said:

Was it Yen strength that caused the market to puke or was it Yen weakness

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Japanese Yen Carry Trade Unwind Spurs Market Chaos Monday​

BISness podcast - The carry trade unwind​

The Bank of Korea (BOK) has estimated the total value of funds tied to the yen carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields, at approximately 4,690 trillion won ($3.5 trillion). The central bank analyzed that about 302 trillion won ($227 billion), or 6.4% of the yen carry trade, could be liquidated in the event of global interest rate cuts.
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The BOK forecasted that investors will unwind more carry trades once major countries begin lowering interest rates following the Federal Reserve’s recent rate cut. The liquidation volume is expected to reach an additional 32.7 trillion yen (about 302 trillion won).
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When Takaichi won the first round of votes, it led USD/JPY to leg up higher to above 146.00. But in the head-to-head vote against Ishiba, she lost out and that's resulting in a massive turnaround in USD/JPY now. The pair has tumbled from around 146.20 to 143.80 levels currently.

Takaichi was the most vocal among the candidates and she viewed that the BOJ was hiking rates too quickly. As such, when she was seen leading the race early on, traders moved to price in a softer yen. But as Ishiba wins out now, it is going back to the drawing board for USD/JPY.
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Bank of Japan Reverses Hawkish Policy and Condemns Yen to Worthlessness​

... Japan’s ruling Liberal Democratic Party and its coalition partner are set to lose their majority in Sunday’s election, according to a forecast from public broadcaster NHK, raising questions about the future of Prime Minister Shigeru Ishiba.
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“If the LDP does indeed lose its majority powers, this could create a quagmire regarding the legislative process — a scenario which may not bode well for the yen and the Nikkei, at least in the short term,” said Tim Waterer, Sydney-based chief market analyst at KCM Trade.
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Futures traders are piling back into bets against the Japanese yen.

That’s making one longtime market watcher nervous that investors could see a repeat of the vicious unwind of the yen carry trade that rattled global markets on Aug. 5.

“Traders are piling up bets against the yen again, less than a month before the next BOJ meeting when a hike like the last one in August could trigger a reversal,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co.
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As Kleintop noted, the BoJ is expected to announce another interest-rate hike when its December policy meeting ends on Dec. 19.

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My theory is that the BoJ tried to prick the asset bubble by strengthening the yen. The market fought them off and doubled down on the carry trade.

Japanese banks are forming a double top on both the daily and weekly charts. If confirmed, we are likely to see the yen take out leveraged traders and cause a calamity on Wall Street.

De-leveraging episodes are always ugly. I'm a trader, I use stops, etc so it shouldn't matter - but I'm nervous as hell and sitting on a pile of cash. If this is what I think it is, I want to bargain shop rather than get hurt and freeze.

In a month's time, Norinchukin Bank will be a household name.

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JustDario" said:

The BOJ is fighting battles in a war it cannot win, the longer they suppress rates the higher the inflation price for Japan people. The moment they raise rates the higher the cost of JPY leverage with impact on the JPY carry trade and higher need to print JPY to keep bailing out the system weakening JPY and increasing costs to Japan people again as a result. All in all the BOJ is stuck in a doom loop that cannot be stopped without huge damages either in Japan or abroad followed by a long and painful healing process afterwards, so is just a matter of what the BOJ ultimately decides to break sooner or later (and better this way rather than all I described happening out of its control)

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