QuiCQ 01/03/2024
End of Carry?
"In the financial markets, hindsight is forever 20/20, but foresight is legally blind."
-- Benjamin Graham
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The drumbeats announcing a possible abandoning of NIRP (Negative Interest Rate Policy) by the BoJ (Bank of Japan) are getting louder and louder by the day. A stronger core CPI in Japan reported at the beginning of the week was followed by comments from BoJ board member Hajime Takata: "We need to consider flexible and nimble steps including for an exit, for instance, the end of the yield curve control framework, negative interest rates and what to do with the overshooting commitment." The end of NIRP and YCC could also mean the beginning of the end to the immensely profitable carry trade. (Today’s COTD below shows illustrates the profitability of borrowing in Yen and converting them to Mexican Peso to lend out in that currency.) Now, some sources cite the Yen carry trade of being in excess of UD20 trillion. This has the potential of being a massive, disruptive wildcard to global bonds and stocks. Stay tuned… (and this time I really mean it!)
