The Yen Carry Trade Crisis Explained

Market Mondays

EYL Network

Entrepreneurship, Business, Investing

5 • 4K Ratings

🗓️ 14 August 2024

⏱️ 5 minutes

🔗️ Recording | iTunes | RSS

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Summary

In this insightful clip from Market Mondays, hosts Ian Dunlap, Troy Millings, and Rashad Bilal tackle the complexities of the Yen carry trade and its potential implications on global markets. The yen carry trade, which involves borrowing money from Japanese banks at very low interest rates to invest in higher-yielding assets, has been a popular strategy among investors. However, with recent adjustments in interest rates, this strategy has become riskier.

*Key Points Discussed:*

- *Yen Carry Trade Overview:* Ian Dunlap explains the basics of the yen carry trade, highlighting how investors would borrow cheap money from Japanese banks and invest it elsewhere for better returns.

- *Interest Rate Adjustments:* The shift in interest rates means that those who borrowed under this strategy are now facing higher repayment costs, potentially leading to financial trouble if their investments haven’t paid off.

- *Market Implications:* The hosts discuss how this shift affects the overall market, emphasizing that while the yen carry trade itself might not cause a market crash, other economic disasters could trigger significant downturns.

- *Historical Context:* Ian touches upon historical instances, such as the market peak in 1999, drawing parallels and lessons to be learned from those periods.

- *Japan’s Interest Rates:* A detailed discussion on the impact of Japan's prolonged low and negative interest rate policy, and how any significant rise in these rates could shake the markets.

- *Current Market Status:* Ian reassures that despite recent turmoil, VIX has recovered, indicating a stabilization in the market.

The trio also dive deep into the broader implications of these financial mechanisms, linking the yen carry trade strategy to past economic bubbles and cautioning viewers about the dangers of over-leveraging and the importance of knowing when to exit trades.

Whether you’re an experienced investor or just getting started, this episode of Market Mondays offers valuable insights into the complexities of international financial strategies and their impact on global markets. Stay informed and ahead of the curve with expert advice and analysis from the Market Mondays team.

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What are your thoughts on the yen carry trade? Do you think we’re headed for another economic bubble? Share your insights and questions in the comments below.

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Transcript

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0:29.0	All right, so do you think the yen carry trade is over, or do you foresee more potential disasters arising in the future of this situation?
0:40.0	For those who don't know, the endcarry trade is when you could borrow money from Japanese banks for little and let's say buy bonds or invidi or stocks, but now that the rates have adjusted, people have to pay those loans back to if you
0:55.2	are in a losing trade, you're in trouble.
0:57.5	Do I foresee that there still be some catastrophe here a little bit, but I think everything
1:02.4	is priced now. if the market drops again it would be because of another
1:07.6	Disaster it was interesting to see like the investor class talk about it, but it didn't get, I think, the burn that it should have got in the PR cycle or the media cycle.
1:17.0	I told you guys, the Vickswood recovers currently at 19, so you didn't have to worry about that so the market is going
1:24.0	back up is recovered pretty well but no I think if we have a disaster that
1:27.7	drags the market down it would be another catalyst and this won't be it
1:31.2	along but I was terrified to see the Nikai almost go to 29,000 that quickly in a week when the Nikk is like a zone of safety for most investors.
1:43.0	But here's a good lesson to learn.
1:45.2	You can't have negative interest rates
1:47.4	or zero interest rates for a long period of time.
1:51.0	But those who got in and who borrowed hundreds of time. But those who got in and made who borrowed hundreds of billions of dollars or billions of
1:56.2	dollars and did the trade you made some real money. But you can't have a zero interest rate
	...

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