Bob Elliott
CIO of Unlimited Funds, Portfolio Manager of Hedge Fund ETFs
Japan's intervention may mark a turn higher for the yen, but a surge like past appreciation periods is unlikely because there is no yen carry trade to unwind these days. Japan's near 5% of GDP current account surplus is also less structural than it looks: trade is near neutral, and the surplus comes from large investment income that is usually reinvested abroad automatically. x.com x.com
The Japanese yen is set up for a reversal because yen shorts are crowded just as economic conditions, policy and asset markets start shifting in Japan's favor. Prime Minister Takaichi brings a strong pro-growth bias and corporate reforms, and large semi-government asset managers are looking to bring money home. x.com x.com
The yen is strengthening sharply toward ¥153-154 as the Bank of Japan hikes rates and intervenes, starting to unwind the global carry trade funded by cheap yen. That is not a normal FX move but a systemic margin call on every leveraged position funded in yen, with the BOJ now playing its own game rather than following the Fed. x.com
The yen is strengthening on a carry-trade unwind as markets price in a 50-basis-point BOJ hike. @VKMacro notes USD/JPY fell below 157 and held, something intervention could not achieve. Kevin Warsh's speech was an art-of-the-deal sleight of hand that fooled markets into seeing a hawkish Fed. Yen calls are working because volatility was too low for the coiled spring of carry leverage. x.com x.com
The yen stays weak because intervention cannot fix Japan's deeply negative real rates and a sluggish central bank. Japan deployed up to $95.6 billion over two days, and joint intervention with the US Treasury briefly lifted the yen about 2.8%, but about 85% of that rally has evaporated, with USD/JPY back near 159. The yen has lost 30.6% against the dollar in five years. Intervention did warn speculators off the 160-164 zone, and yen net shorts fell $8.865 billion in a week, the most since 2014. … Show more
Going long the Japanese yen is the best trade on earth right now, because US Treasury Secretary Scott Bessent will step in to save it, with swap lines and similar measures. The yen's slide has become severe enough that Japan needs to raise rates. x.com x.com
The yen looks set to keep strengthening against the dollar, because Treasury Secretary Scott Bessent appears determined to push USD/JPY lower. Bessent said in an interview that as "the house" he knows exactly what Japan, the Bank of Japan and its policymakers will do when the US intervenes in the yen, and dared markets to bet against him. As a former fund manager who helped successfully attack the pound and the Thai baht, he holds a real information advantage. x.com
The yen will not strengthen meaningfully unless Japanese yields spike far higher, and intervention will not change that over the longer term. USD/JPY will not reach 150 or lower without a very big jump in Japanese yields; only yields going parabolic faster than before would drive it down. The bond market is smarter than the BoJ and Fed combined, even with Japan's 2-year yield above 1.57%, a 30-plus-year high, per Barchart. x.com
The yen could see a violent short squeeze, as Treasury Secretary Scott Bessent claims asymmetric insight into Japan's next policy move and openly dared traders to short it, saying "I am the house now." If Japan tightens or intervenes again, unwinding the huge leveraged yen carry trade could force liquidations across stocks and crypto. @QmoCrypto notes Japan has sold about $71 billion of Treasuries while defending the yen. x.com
Shorting the yen against the dollar makes little sense given Japan's stronger fiscal and external position. Japan's primary deficit is a fraction of the US's, it is cutting energy imports through renewables, holds massive external assets and shows budget wariness, such as refusing Asian Games spending. Meanwhile Trump promises $5,000 per voter for the midterms. Shorting the yen against commodities such as silver is understandable; against the dollar, not. x.com x.com x.com
Japan's yen interventions only buy time, so the yen is likely to keep weakening until the Bank of Japan actually moves. Reserves only help while rates stay pinned, and each round costs reserves Japan can't replace while buying less time, making intervention a speed bump for the carry trade. Japan did not save USD/JPY 160 but rented time at it; once 162 prints, the intervention narrative dies. x.com x.com x.com x.com
Japanese equities are under attack from every direction after Japan and the US intervened to rescue the yen from a 40-year low. A stronger yen crushes export giants' overseas profits, while surging bond yields raise borrowing costs, the AI trade that drove the Nikkei to records unwinds, and fears grow over Japan's debt pile. The Nikkei has fallen about 16% in a month; the currency rescue may have broken the stock market. x.com
