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Japan Declared War on the Yen Carry Trade… It Won’t End Well



Japan Declared War on the Yen Carry Trade… It Won’t End Well

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Japan may have finally figured out why the yen keeps getting crushed. And no — it’s not because some hedge fund in New York borrowed a few billion yen and YOLO’d it into U.S. Treasuries. That’s the cartoon version of the carry trade. That’s the version financial media repeats because it sounds simple: borrow cheap yen, buy higher-yielding assets overseas, yen goes down. But that is not the real carry trade.

Eurodollar University’s conversation w/Steve Van Metre

https://www.facebook.com/FastMoney/videos/japanese-yen-is-flashing-major-warning-sign-for-market-bk-asset-managements-kath/2457269361418309/

https://www.youtube.com/watch?v=ubDFvdI02EQ

https://www.eurodollar.university
Twitter: https://twitter.com/JeffSnider_EDU

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42 Comments

  1. @Jerry-vz4ix on

    Free capital mobility isn't neutral plumbing, it's what forces countries into these positions in the first place, whether it's Japan's savings fleeing or the US absorbing everyone's surplus. Without capital controls, Japan doesn't get to choose debt paydown as a real alternative. The option exists on paper, it's foreclosed in practice by the open account.

  3. @Jerry-vz4ix on

    You can add into the mix that high end exports to China from Japan are being reduced. You could argue Japan is going along with a US request, or you can argue Japan is nearest to the frontline of WW3 and is acting in its own best interest while complying with the US request. Either way, dollars otherwise obtained in trade with China now have to be sourced through FX swaps. When oil spikes, this matters.

  4. @angelmarauder5647 on

    Eh? The yen has been oppressed since the US decided that they aren't allowed to dump high techs products on the US market (us foreign policy anti- competition….why the yen catapulted in value back then)…. And yet…. For some reason it's ok if China does it now -_-

    I guess the rich people are doing the last but of exploitation.

  6. @Bob-f5b2q on

    I first visited Japan as a student 35 years ago. The difference between now and then could not be bigger. It was obvious to me then that capital formation in the western sense was simply not in the Japanese vocabulary. Their corporations owned interlocking shares of one another which led to zombie corporations carrying on for decades. Add to that the endless financial stimulus and now unmanageable government debt. The core of the problem is within the Japanese mindset itself. Nobody wants to invest in a system with ruinous taxation of every aspect of life particularly real estate and even death. Japanese families have essentially no ability to accumulate wealth other than stuffing a mattress. The country is on track to lose half its population in the next 30 years. Oh and don't forget that every 80 years there's a major earthquake in the Tokyo area. The last one was in 1923. The next one will finally break the country & possibly trigger a capital flight back to the country the world has never seen. Hundreds of billions of dollars in foreign assets being sold off to rebuild the country. It'll touch every western nation.

  7. @paxdriver on

    it would look the same if the world was pulling away from the USD reserve and shifting toward alternatives, with Japan holding so much US treasuries as their safety net all these years, of course the usd/jpy would get irredeemably destabilized. Japan doesn't need to grow its economy because the population is stagnant and they're resistent to immigration. They're a mature society, there's no point to excess capacity when there isn't much room to spread out, and when energy crises are caused for no reason by external actors and they import fuel. Wars in the breadbasket and oil gulf directly affect Japan and their financial system's safety net are all being shaken from underneath them. I don't think your views here aren't as overly simplistic as the hedge fund carry trade.

  11. @Triring65 on

    Have you taken a look into Nikkei 225 index recently?
    It's announcing record highs every other month.
    You guys' explanation completely countdicts this market trend.

  12. @imacg5 on

    This is Japan's attempt to regain monetary sovereignty after American military defeat. There's no "what happens next" in this video because a sovereign Japan is not part of the post-WWII World Order, so if they manage to pull this off, something completely new will emerge.

  14. @squashua16 on

    Invest in your own people is the way. And the people carry it forward. Slow and easy, not kiketooled and stolen

  21. @osark2487 on

    Governments cannot fix the economy or create growth, they only create dislocation. What was that Reagan say? "The most terrifying words are 'I am from the government and I am here to help'."

  23. @Ultrajamz on

    If they lower rates they need to ensure the improved export profits flows to the average japanese or else their prices will go up domestically and the workers will get crushed on their quality of life

  24. @missydeluxe3174 on

    Looks like you haven't seen the recent news yesterday that Japan's Ministry of Finance is going to repatriate their overseas GPIF (General Pension Investment Fund) holdings from overseas. This is the largest pension fund in the world with $1.8 trillion in overseas assets. Repatriation will cause a ripple effect across financial markets and cause the yen to strengthen dramatically. It will also boost the Japanese stock market as capital starts flowing back into Japan. Get your popcorn ready.

  29. @fluffyclucks7320 on

    The BOJ has, at least in part, been funding the pump into the AI bubble. If the AI bubble bursts, and starts coming down to earth, all of the massive levels of leverage underpinning the bubble will mean a lot of margin calls. THAT will lead to the yen carry trade unwind, which will feed on itself. The BOJ is not only behind the curve, as Bessent said. It is now WAY behind the curve. Clueless is an understatement.

  30. @PeltierPower on

    Something doesn't add up. I'm running a small export based business in Japan and the low yen has boosted my profits by 50%,. It's very simple, I'm happy and also paying extra tax so the government is happy. Yes, parts costs have risen but no so much to offset the extra income. Steve said (around 8:00) that small businesses are hurting because of hedging, but then didn't really explain how that works. Why do small businesses hedge, how do they do it, and how does it end up causing bankruptcy? I think that needs more explanation, not just one sentence.

  32. @leoSaunders on

    please fix ur hair 😭😭 either use some moistener so it doesn't stiffen up to the top or cut it 😭🙏 or comb it back. if the reason for that weird cut is a balding scalp, then do something about that with minoxidil or what.
    greg doucette doesn't use exogenous stuff but went for a transplant and had to do it twice because he uses PEDs and didn't want to drop his dosage 🙄 i remember watching a More plates more dates video from Nov 2021 " Minoxidil Has Allowed Me To Finally Usurp My Father ", watch that.

  33. @yoshihama_bay on

    ​I am a regular viewer of your channel and truly appreciate your valuable insights. While I agree with the core of your arguments in this video, I would like to respectfully correct one point.
    ​The rising number of bankruptcies among small and medium-sized enterprises (SMEs) in Japan is not actually due to foreign exchange hedging issues—mainly because most SMEs lack access to such sophisticated financial tools. Instead, according to Teikoku Databank, the primary drivers are 1) severe labor shortages and 2) skyrocketing costs. Because Japanese SMEs rely heavily on domestic demand and regional economies, they are being crushed by rising import costs driven by the weak yen, combined with a workforce depletion caused by an aging population and declining birthrate. Despite these critical labor shortages, the government has failed to take effective action, as Japan fundamentally restricts the immigration of blue-collar workers.
    ​Furthermore, the Bank of Japan and the Ministry of Finance are bureaucratic institutions bound by precedent. Driven by elite bureaucratic inertia, risk aversion, and a "not on my watch" mentality, they lack true independence and constantly defer to the ruling administration. The Japanese public also shows little interest in politics; they welcome short-term government handouts while failing to grasp long-term growth strategies. Many still believe the outdated propaganda that a weak yen automatically boosts export industries and enriches the economy.
    ​Very few politicians or media outlets genuinely question why the yen is weakening or why national power is declining. Instead, we see a dangerous shift toward pre-war sentiment, characterized by rising nationalism, hostility toward China, and an obsession with maintaining a male-only imperial lineage. Ultimately, due to a stubborn Galapagos-like isolation unique to island nations and a deeply conservative populace, change remains highly unlikely.

    いつも視聴させていただいています。貴重な洞察をありがとうございます。今回の動画では、基本的に同意しますが、一つ誤りと思われることを正させていただきます。日本の中小企業の倒産件数が増加していますが、それは為替ヘッジの問題などではなく、何故ならそのような高度の金融ツールへのアクセスは中小企業にはないでしょうから、むしろ、帝国データバンクによると、１) 人手不足、　2)　コスト高、です。中小企業は主に内需と地方に偏っており、円安による輸入コストの増加と少子高齢化による人手不足による倒産です。日本は基本的に単純労働の移民を制限しており、人手不足にも関わらず政府が何ら策を講じることができていません。また、日銀や財務省は前例踏襲主義のお役人ですから、エリート官僚特有の組織の硬直化とことなかれ主義、自分の代さえ乗り切ればそれでいいと、独立性はそもそもなく、政権の顔色ばかりをうかがっています。日本国民は政治に殆ど関心がなく、政府によるばらまきばかりを歓迎し、成長戦略といった長期的な戦力を理解してません。円安になれば輸出産業が潤い経済が豊かになるという一昔前のプロパガンダを信じています。円安や国力の低下を何故？と問う政治家やメディアはほとんどなく、ただ右傾化して中国を敵視するセンチメント、皇室男系男子論、と戦前に回帰しようとする動きが非常に危険だと感じています。全般的に島国特有のガラパゴス的な孤立、保守の国民性が故に変化は期待できません。

  37. @Donpaulino77 on

    What should matter is the real return on investment so the yield minus Inflation. If you make this the decisive faktor Japan is a better place for investment because they have their inflation better under control. But for the fast majority of investors that seems not to be the decisive faktor. And their will have to suffer dearly for choosing the wrong one

  39. @Avatar-l6u on

    They are describing a sovereign caught between domestic collateral impairment and external settlement dependence. Tho they seem not to get or they wouldn't suggest dumb ideas

  40. @zackbog on

    Unless Japan has more babies no one wants to put money in a place that maybe only around for 40 years

  41. @gansmaier3994 on

    Japan's economy is to slow and outdated. What desired product from Japan do you like to buy? A fossil Toyota? No thanks. Some consumer electronics? Too expensive. Some fancy camera? My phone is fine… so you don't produce fancy stuff and you are dependent on energy import. So now they will pay the bill