Prime Target: Carry Trades - except for the USDJPY!
Updated
Sure, the Yen is overly weak on a trade-weighted basis BUT it is the least weak versus the USD!
E.g., For any intervention to be effective it ought target just about any other high yielding spread/pair EXCEPT for the USD!
Having established that, it is still far more likely that any intervention would target the USD/JPY directly than the rest, if for no other reason but for its success last September (2022). (Last September, dollar longs were extremely overcrowded which amplified the effects of that intervention, and then most of the cash went into carry trades.)
Times have changed, though, whether the BoJ will be willing to subscribe to that notion or not. (which is yet to be seen).
OK, so where does this potential paradox (or rather, just a dichotomy? ;-) leave one, in trading terms?
1) If there ever was a right time to trade the Japanese Yen against a basket of it's counterparts, now would be it! (Work has almost completed on just such a basket this time with correct weighing. ;-)
2) FX options (especially Gamma changes) have been gauging the potential market effects of the BoJ's various jaw-boning attempts (most of which were summarily ignored by the markets) in support of the Yen, rather accurately. "If it ain't broke don't fix it." Stick with it!
p.s. The CHF/JPY is a special case here (not quite a carry trade) as it's eye-watering rise is due to the same, deranged SNB policy which ended in tears, back in 1978-79. (... Switzerland slipping into a far deeper depression than it's trading partners, back then.)
E.g., For any intervention to be effective it ought target just about any other high yielding spread/pair EXCEPT for the USD!
Having established that, it is still far more likely that any intervention would target the USD/JPY directly than the rest, if for no other reason but for its success last September (2022). (Last September, dollar longs were extremely overcrowded which amplified the effects of that intervention, and then most of the cash went into carry trades.)
Times have changed, though, whether the BoJ will be willing to subscribe to that notion or not. (which is yet to be seen).
OK, so where does this potential paradox (or rather, just a dichotomy? ;-) leave one, in trading terms?
1) If there ever was a right time to trade the Japanese Yen against a basket of it's counterparts, now would be it! (Work has almost completed on just such a basket this time with correct weighing. ;-)
2) FX options (especially Gamma changes) have been gauging the potential market effects of the BoJ's various jaw-boning attempts (most of which were summarily ignored by the markets) in support of the Yen, rather accurately. "If it ain't broke don't fix it." Stick with it!
p.s. The CHF/JPY is a special case here (not quite a carry trade) as it's eye-watering rise is due to the same, deranged SNB policy which ended in tears, back in 1978-79. (... Switzerland slipping into a far deeper depression than it's trading partners, back then.)
Note
Of course the central reason for the focus on Carry Trades should be ...... this!
Note
So why are the Gamma positions generally the gauge for potential BoJ intervention?
Simply stated, it is because the BoJ has stated that "we are not concerned about Yen exchange rates but we are carefully watching for any unreasonable, sudden weakening of the Yen."
E.g., The BoJ is concerned about the second derivatives (speed of change in the Betas) of the Yen, and that is reflected in FX Gamma positions.
On an additional note, this (to me) sounds like a boiler-plate statement, including the lack of any tangible content ;-)
Note
Today, the worst Japanese Gov. Bond auction since 1987.pbs.twimg.com/media/F3tsdoXXkAEGTCV?format=jpg&name=large
Trade active
MXNJPYIf this H & S completes here, it is also likely to have long term implications!
tradingview.com/x/rhiTtIBp/'
Short Entry - upon a break down!
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