Carry Trade sullo Yen Giapponese. Spiegazione con un Semplice Esempio

Carry Trade sullo Yen Giapponese. Spiegazione con un Semplice Esempio

hello everyone I’m sure you heard in the news about the stock market turmoil due to the unwinding of the Japanese carry prade the NASDAQ Tech heavy index dropped more than 10% from its recent high so what is this unwinding of the Japanese car trade let’s break it into two components the unwinding part and the Japanese car trade unwinding is a fancy word for selling it refers to the process of when investors sell outdo position that they established initially using the Yen kry trade so what is the Yen kryy trade the Yen kry trade involves borrowing money from Japan at a low interest rate taking this money converting it into another currency like US dollar and investing this money in a high earning asset like a US Treasury or investing that money in US Stocks earning more than what the Japanese borrowing rate quick profit quick easy profit this trate is usually carried by who speculators what happened recently is this the bank of Japan raised the interest rate from .1% to. 25% as a result the Japanese currency appreciated and value the best way to illustrate this is to take a look at an actual example let’s assume in early July 2024 Tom a US Speculator borrowed 10 million Japanese Yen at an interest rate of 1% Tom took this money converted it to us doll which converted to $62,000 Tom took this money and invested the $62,000 in a higher interest bearing Investments like us treasury bond or Tom invested this money in the stock market and purchased Nvidia or some other stock earning a higher rate for the sake of this illustration assuming US Treasury is paying 5% Tom is expecting to make 4% 5% minus the one borrowing rate equal to 4% so the $62,000 would earn 4% for Tom and Tom will keep the profit go back by the Japanese Yen expecting to pay around $62,000 and pocket The Profit what happened is this early August if you needed to buy one Japanese Yen you needed 069 of a dollar rather than 062 in July this means Tom will need 69,00 to pay off the loan what would Tom and people like Tom would do in those circumstances well what can they do they will need to buy Japanese money now why because the fear is the Japanese Yen keeps on strengthening so what would they do they will take their money if they have extra money on hand and they will buy Japanese Yen and what is that going to do that’s going to bid the Japanese Yen higher which which will make it worse for other investors like themselves that’s assuming they have the money if they don’t have the money what would they have to do they will have to liquidate they will have to sell their current position whether that’s an Nvidia stock Apple stock US Treasury putting pressure down pressure on stock prices on bond prices on the investment that they invested in and this cycle is vicious as you sell more the price will drop more as it drops more there’s more more fear and the cycle will keep on going the risk of this trade is we don’t know the of the Japanese scary trade we don’t know how much money is involved in that trade that’s the bad news the good news is the Bank of Japan decided not to raise interest rate anymore what is the moral of the story don’t be a gambler don’t be a gambler don’t be a speculators if you want to invest be careful the first thing you do is invest in yourself how through education through career growth through certifications and if you have extra money invest carefully because the market is ruthless for hat lectures is always here for you whether you are studying for your CPA exam CMA exam enrolled agent if you’re an accounting student good luck and stay safe

In this video, we explain the unwinding of the Japanese yen carry trade suing a simple example
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Unwinding the Japanese Yen Carry Trade: Implications and Mechanics
The Japanese Yen carry trade has been a popular strategy among investors, particularly when Japan’s interest rates are significantly lower than those of other countries. This strategy involves borrowing Japanese yen at a low interest rate, converting the yen into another currency, and then investing in higher-yielding assets abroad. The profit comes from the differential in interest rates between the two currencies. However, unwinding this trade can have significant implications for the financial markets, especially when done en masse.

1. What is Unwinding the Carry Trade?
Unwinding a carry trade refers to the process where investors close out their positions by selling their higher-yielding investments and repurchasing the Japanese yen to repay the loans. This typically occurs when:

There are expectations of rising interest rates in Japan, making the carry trade less profitable.
The higher-yielding currency is depreciating or expected to depreciate, which would decrease returns and increase risks.
General market volatility or economic instability prompts investors to move to safer assets.
2. Mechanics of Unwinding
The process involves several steps:

Selling the Foreign Assets: Investors begin by liquidating the assets purchased with borrowed yen. These assets could be stocks, bonds, or any interest-bearing instruments in foreign currencies.
Converting to Yen: The proceeds from the sale of these assets are then converted back into Japanese yen.
Repaying the Yen Loans: Finally, the investors use the yen to repay their original loans. This increases demand for the yen, strengthening it against other currencies.
3. Market Impact
The unwinding of the yen carry trade can have broad implications for global financial markets:

Appreciation of the Yen: As investors buy back yen to cover their loans, the increased demand for yen leads to appreciation of the currency. This can impact Japanese exporters by making their goods more expensive overseas.
Increased Volatility: The unwinding can lead to increased volatility in currency and stock markets, particularly in the economies where the investments were made.
Interest Rates Sensitivity: Markets become highly sensitive to interest rate changes in Japan or in the countries where the funds were invested, as these can trigger large-scale unwinding activities.
4. Economic Implications
The economic implications can be significant, particularly for Japan:

Export Competitiveness: A stronger yen can hurt Japan’s export-driven economy, as Japanese products become more expensive and less competitive in international markets.
Monetary Policy Complications: The Bank of Japan’s monetary policy can be complicated by large movements in the yen, affecting their ability to control inflation and stimulate economic growth.
5. Risk Management
Investors engaged in yen carry trades must be vigilant about risk management, which includes:

Monitoring Interest Rates: Keeping an eye on policy changes by the Bank of Japan and other central banks whose currencies are involved in the trade.
Market Sentiment: Being attuned to shifts in market sentiment, which can indicate when a rush to unwind positions might begin.
Hedging Strategies: Employing hedging strategies to mitigate potential losses during volatile market conditions.
Conclusion
Unwinding the Japanese Yen carry trade can have significant effects on financial markets, exchange rates, and the economy. Investors must carefully consider the risks associated with this strategy, particularly in times of economic uncertainty or expected shifts in interest rate policies. For policymakers, understanding the dynamics of the carry trade is crucial for effective monetary policy and maintaining financial stability.

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