In this video: Now that we have had the Bank of Japan increase its interest rates, the market has done the complete opposite...Does it mean the market doesn't care? Nope...Its positioning.
True Carry unwind involves volatility in forex...We are seeing that behaviour.
More so, there is a huge options expiry coming into play today, with cryptocurrency seeing a $3.15B expiry in bitcoin and eth. Video by Traders Reality.
The "Yen Collapse" refers to the recent, sharp weakening of the Japanese Yen against major currencies like the US Dollar, driven primarily by the Bank of Japan (BOJ)'s ultra-low interest rates contrasting with higher rates elsewhere, creating massive yen carry trades. Despite BOJ rate hikes, disappointingly vague forward guidance on future hikes made traders bet against the yen, causing it to fall further, increasing import costs in Japan, raising inflation, and prompting warnings from Japanese officials about speculative trading.
Key Causes
Interest Rate Differentials: The BOJ maintained near-zero rates while the US and others raised theirs, making yen-funded investments in foreign assets more profitable (carry trade).
BOJ Communication: Disappointing forward guidance on future rate hikes after recent hikes signaled the BOJ might be slow to normalize, disappointing markets and weakening the yen further.
Carry Trade Dynamics: Investors borrow cheap yen to buy higher-yielding assets, creating massive selling pressure on the yen.
Inflation & Import Costs: A weaker yen makes imported goods (fuel, food) more expensive, fueling inflation, though wages haven't kept pace, squeezing households.
Trade Bitcoin >>
