an individual buys Yen and borrows from a Japanese bank at 0% interest. The individual then exchanges Yen for dollars and puts the money in a European bank at 5% interest therefore gaining 5% interest on their savings due to the difference of interest % between the Japanese bank at 0% & the European bank at 5%. With leverage individuals can make some potentially big profits.
Now they will potentially raise rates causing a squeeze type play. Intervention soon!
Love your work, thanks for posting this. I would however fade the initial rally, this must be a quick play by definition since the rate diferrentials are still significant and Ueda's Sintra comments give no hint abount ending YCC. Plus more hikes in the EU and US coming.
I’m watching this setup for now and looking to fade the Usdjpy rally and you’re absolutely right, no Position atm but I wanted to get this out here a bit to discuss and explain it a bit as well as throw up some charts and how exactly to capitalize
The YCC change will be December to March 24. Swap markets are now liquid I.e it’s no longer a surprise and illiquid event. Japan changes at a very slow pace. Yen rates are -.25 & Usd rates are 5.5%. Which one matters more if rates move? As we start to near peak rates, & Japan will look to intervene as well as change policy... I hope this helps
I fully agree with you on that. Def agree about 2H 2023 and carry trade unwinding. I still don't fully understand YCC though and will dig deeper on that in the context of ending the YCC. One parting thought: I wouldn't particularly trust the bankers when they say YCC is temporary. It might be, but, as we all know, temporary public policies have a nasty habit of becoming perpetual ones...
Thank you for your reply and interesting discussion!
I’ll also add , BOJ will stop YCC and that isn’t the “forever” policy by them, that coupled with the slowdown in rate hikes in other countries as we head into 2H of the year and 2024 as things start to slow and lag effects start to hit, then we start to see the carry trade unwind. But in terms of the trade right now, 145 is a previous intervention level as mentioned and they intervened quite a bit last October before the Yen finally caught a bid and Usdjpy started going down from 150 all the way down to 127.88 in December if 2023 so quite a swift move.
Agree with you on this trade. I have sell orders in at higher levels set over the last two weeks - played this successfully last October. Need tight stops around a 145 entry in case they let it run up. Japanese very unpredictable... facts and circumstances different to last October so maybe I miss it....
Appreciate the the write up in layman’s terms
Eliant this is still valid correct?
an individual buys Yen and borrows from a Japanese bank at 0% interest. The individual then exchanges Yen for dollars and puts the money in a European bank at 5% interest therefore gaining 5% interest on their savings due to the difference of interest % between the Japanese bank at 0% & the European bank at 5%. With leverage individuals can make some potentially big profits.
Now they will potentially raise rates causing a squeeze type play. Intervention soon!
Love your work! Thank you!
Love your work, thanks for posting this. I would however fade the initial rally, this must be a quick play by definition since the rate diferrentials are still significant and Ueda's Sintra comments give no hint abount ending YCC. Plus more hikes in the EU and US coming.
I’m watching this setup for now and looking to fade the Usdjpy rally and you’re absolutely right, no Position atm but I wanted to get this out here a bit to discuss and explain it a bit as well as throw up some charts and how exactly to capitalize
The YCC change will be December to March 24. Swap markets are now liquid I.e it’s no longer a surprise and illiquid event. Japan changes at a very slow pace. Yen rates are -.25 & Usd rates are 5.5%. Which one matters more if rates move? As we start to near peak rates, & Japan will look to intervene as well as change policy... I hope this helps
I fully agree with you on that. Def agree about 2H 2023 and carry trade unwinding. I still don't fully understand YCC though and will dig deeper on that in the context of ending the YCC. One parting thought: I wouldn't particularly trust the bankers when they say YCC is temporary. It might be, but, as we all know, temporary public policies have a nasty habit of becoming perpetual ones...
Thank you for your reply and interesting discussion!
I’ll also add , BOJ will stop YCC and that isn’t the “forever” policy by them, that coupled with the slowdown in rate hikes in other countries as we head into 2H of the year and 2024 as things start to slow and lag effects start to hit, then we start to see the carry trade unwind. But in terms of the trade right now, 145 is a previous intervention level as mentioned and they intervened quite a bit last October before the Yen finally caught a bid and Usdjpy started going down from 150 all the way down to 127.88 in December if 2023 so quite a swift move.
Agree with you on this trade. I have sell orders in at higher levels set over the last two weeks - played this successfully last October. Need tight stops around a 145 entry in case they let it run up. Japanese very unpredictable... facts and circumstances different to last October so maybe I miss it....
Of course!
Very clear and informative. Thank you! If this plays out, will we see a large correction on the Nasdaq?
Nevermind, I just overlayed YCL with QQQ and they don't seem to have a correlation.