Business & Economy
Bank Of Japan Hike Bets Push Yen Higher And Pressure Carry Trades
Borrowed-yen bets face rising funding costs and sharper market reversals.
Borrowed-yen bets face rising funding costs and sharper market reversals.
The ’s move toward higher rates is putting the under pressure and raising the risk of a broader . Because so many investors have borrowed cheap yen to chase returns in , even a modest tightening can force fast s and ripple through currencies, bonds and global risk markets.
Ahead of the meeting, Reuters reported that in the yen had flipped for the first time since February. The move reflected growing conviction that the would again, and it showed how quickly leveraged traders were repositioning as the strengthened.
Market commentary on September 10 said a sharp carry-trade unwind was not yet visible, even as global stocks stayed on edge. Analysts argued that the current widening or narrowing of was still gradual compared with past episodes, but they warned that a faster BOJ tightening cycle could still trigger and .
With the BOJ meeting approaching, Reuters said the odds of a 25 basis point hike to 1.25 percent had climbed to 97 percent. The report also described the carry trade mechanism, borrowing low-cost yen to buy higher-yielding assets elsewhere, and said the move was already unsettling investors who had used yen funding for .
As expectations for a September hike hardened, the yen jumped and pushed against the assumptions behind the . Reuters reported that the currency’s surge was already forcing some of , while Bloomberg said the rally helped drive the yen to a one-month high against the dollar as traders priced more BOJ tightening.
Governor Kazuo Ueda sd at a September 2 speech that at the July meeting he had seen reason to adjust the . He pointed to prices and wages no longer behaving as before, along with inflation pressure from and tied to . That reinforced the idea that another hike could come soon if wage and price trends held up.
By mid-August, were pricing a strong chance of a September BOJ move, with consensus centered on a to . Coverage at the time noted that the policy gap with the U.S. was still wide enough to keep the alive, even if borrowing costs in Japan rose again.
In its July outlook, the said underlying had been approaching 2 percent and that financial conditions remained accommodative. It also said it would continue raising the and adjust the degree of . That gave markets a clear signal that normalization was still on track, and that another hike remained possible.