The Day The Yen Carry Trade Died

Tyler Durden's picture

While everyone is staring in disbelief at the USDJPY, the real carry action is in the high yielding-YEN pairs, i.e., the development, high growing countries. And it's a massacre: ZARJPY, NZDJPY, AUDJPY - all are plunging far more than the USD. This is nothing short of a complete carry trade unwind. The implications: the cheapest recurring source of funding for risk assets - the Yen carry trade, is over. Those who managed to sell early on are lucky. The rest will get such an onslaught of margin calls tomorrow they may need to access the discount window (if Primary Dealers and the luckier banks). Many will be forced to sell assets to satisfy collateral requirements as ongoing sales of carry pairs push the Yen ever higher, and force ever more liquidity out of the market. And if the Yen carry trade is done, the question is when will the USD, which has also been a carry currency for some time, follow suit. And, once again, the most troubling observation is that the BOJ has not intervened. Our sinking feeling is that after pumping 50 trillion or so in money markets, the petty cash may be running quite low. In any case, ES opens in 2 minutes. Grab the popcorn now.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
etrader's picture

GS's FX desk are upside down is John notes are to be belived....

chumbawamba's picture

Can you say, "Black Swan event"?

I knew you could.

I am Chumbawamba.

egdeh orez's picture

Ok guys... calm down... this might not be over yet.

We've witnessed many, "can this be it" moments in the last two years.

What if the Japanese fix this "nuclear disaster" in the next 10 days and the Yen starts dropping like a rock?  In that scenario, the carry trade lives on, and it's business as usual (for the fed's printing press, of course).

bankrupt JPM buy silver's picture

didnt know they could clean up radioactivity that quick wow.

Fish Gone Bad's picture

The internet has really help solve a lot of problems.  Radioactivity isn't one of them though.

Fish Gone Bad's picture

The internet has really helped to solve a lot of problems.  Radioactivity isn't one of them though.

Goolie's picture

It's not about the nuclear issue, it's about rebuilding a country.  Any non-yen denominated assets are being liquidated and the proceeds from those sales are being re-patriated.  Back in 1995 following the Kobe quake, the Yen appreciated 17% over a 3 month period.  Was there a massively large carry trade back then?  I don't know how it compares to today, but this disaster will take far more capital to rebuild.  At some point the Central Bankers in Japan will try and slow down the appreciation...that will probably be an opportunity to add you your long Yen position should you be lucky enough to be long Yen currently.

CrazyCooter's picture

Sorry to camp the top thread, but I think I am not alone in my confusion (I am not a trader/finance guy). I try to dilligently put this type of stuff together on my own, but I don't fully grasp this scenario. Please enlighten/correct me as I am struggling to connect the dots.

The carry trade is a borrow cheap/short term (e.g. the yen because of ZIRP) and lend longer in another currency which has higher rates with the spread being profit.

  • So all these firms out there with such obligations are clearly freaking the fsck out, buying all the yen they can get their hands on, and closing their yen denominated obligations?
  • If so, what is their motivation to do so, as it would seem that Japan is going to devalue if they do anything, making the debts cheaper to repay?
  • Does this mean they have to borrow in something else to replace the yen, such as the dollar?

Any thoughts from professionals/knowledgable parties would be great.




FischerBlack's picture

Borrow cheap, take risk. That means lend long, buy stocks, RE, commodities, whatever. When it unwinds, it looks a lot like fall 2008. Risk assets all correlate. They don't want to buy back yen, but they have to because they're short and it's going up like a rocket and they get margin calls. So they have to sell the other side of the trade to free up cash to go back to yen. It tanks everything.

CrazyCooter's picture

Ok, so the margin call trigger is just a broad based decline or fear of decline in yen denominated assets, which were used as collateral in the carry trade? And once the cycle gets going, its a positive feedback?


steelhead23's picture

Cooter - you really deserve a reply from an FX player, but I'll give it a shot.  Did you notice Tyler's use of the term "margin call?"  Even if a Japanese bank is willing to let you lever your collateral 10 to 1, if the value of your collateral declines (as the dollar is doing relative to the yens you borrowed), they will ask you to meet your collateral obligations to reduce their risk.  So you are going to have to sell assets to meet your obligations - NOW.  Another aspect of this is that the value of a banks assets are currently falling like a rock, so if Bank A needs to raise capital to meet a margin call, its losses could be stunning and if Bank A is sick right now, its going to get sicker.

BTW - I don't know jack about FX, carry-trade, etc. but I do know this - from nuke plants to big banks, risk analysis routinely ignores black swans and I see a flock coming right this way.  Got gold?

CrazyCooter's picture

Making this up as I go along here, but ... some hedge fund takes 100 bucks, borrows 1,000 yen at 0% short term, converts the yen into New Zealand dollars, and lends the NZD at 5%.

All made up, but need something to hang my hat on. So the short term yen debt gets rolled into perpetuity and the long term risk is maybe a new convenience store somewhere in New Zealand.

Black swan shows up and does a Pu on the people of Japan.

So this hedge fund gets a margin call on the short term loan (1000Y), forcing the hedge fund to buy yen (lets call it an additional 100Y pushing the collateral from 100Y to 200Y) on the open FX market (like all the other hedge funds in the same boat), driving the price of yen to the moon?

If this is the answer, I guess I just don't understand why the carry trade loans got margin called.



<minor edits to clarify>

Spitzer's picture

I understand your question...

If the NZD 5% is still there, why the margin call ?

CrazyCooter's picture

Yeah. I was operating on the assumption that the collateral in the short term debt was the longer term investment.

Maybe that isn't the case?


luckylogger's picture

Here is the deal.

You borrow yen at 0% or v. close and then leverage it 200x. the 5% don't mean shit with this kind of leverage when it goes against you.

invest in something else. If the value of the Yen goes up .5% you have lost ALL of your capital. Not some of it but ALL.

Now you will be margin called way befor that so....... basically it only has to go up .2% to get margin called and then you are out of business. done deal !

THE DORK OF CORK's picture

Here's a little secret , sov debt is not debt - its money ( my interpretation yes).

It may appreciate or depreciate in value against Gold but it ain't debt in its truest form - at least it does not have to be.

I think the US could be losing its jewel in the crown here - its India if you will.

If Japan finally says fuck it we are not going to fund global speculation anymore because of its internal crisis and redirects resourses inwards and not be the client manufacturing colony of America and the world then the dollar could be truely fucked.

Remember fiat currencies value depend entirely on their yield potential - as they have already hyperinflated, if this characteristic is lost they are almost worthless.

I think we are watching the final death throws of the dollar here.


Sudden Debt's picture

Tomorrow option exeration day will nuke ALL the markets.

People who didn't got out now got it comming.


Today I took a day off, and I bought food that holds for 6 months and enough bottled water for 3 months.

Whenever the radiation starts to move our way, I'm yet again going to stock in extra.

If I'm wrong, we'll be eating canned food for a while :)

And if I'm right, I'll be right.


Somehow, I've got a very very bad feeling about all of this.


Zero Govt's picture

you're preparing for an asteroid attack presumably, not an economic one! for the radiation it'll be slight for anyone outside Japan and there isn't anything you can do about it (canned food won't help any!)

what must happen is the series of political mistakes made by Japanese politicians are brought to book for this avoidable tragedy... just like they were held to account (cough!) in Washington for the nuclear disasters the US Govt made of US property, US healthcare and US education!!!

i'm sure Barney Frank, who let us not forget 'knows it all' and is the worlds leading expert on property, health and education, is minutes away from telling Japan how to sort out this little nuclear leak 

Tyler Durden's picture

With all due respect, all credit goes to Don McLean

In Fed We Trust's picture

Is it in the realm of possible outcomes, that Goldman Sachs planted a bomb in some oil well of the coast of Japan? 

How similar this feels to the oil spill.

I often wonder what the think tanks had "planned" in order to get the world to> the  NEW World Order.  Just connect the dots.

A little imagination goes along way.  Einstein.

robobbob's picture

Hey, I'm a full on NWO believer, and I've been trying to correlate Japan with the plan. But even I can't come to terms with Tesla longitudinal wave scalar weapons. of course, you can never be too sure.  Castro and Chavez DID blame the US for the Haiti earthquake. maybe I should pick up some more tin foil from the store JIC.

45north's picture

well I'm going long on tin foil!

Rocheleau said he was influenced by the other accomplice, who believed he was being targeted by "the New World Order" and convinced Rocheleau that microchips had been implanted in his sister's unborn baby.

Read more:

rocker's picture

Wow, I kept asking myself how long it would take to hear someone say Scalar weapons or Haarp. You did it Robobob.

When I searched YouTube on the earthquake I got so many hits back on HAARP I couldn't believe it.  So I read many including this "Dutchsinse guy". Studied some of what he was saying to his crowd. I must say, HAARP is real, what they use if for, I'm not sure. But it does not look like a good thing for the Bankster's or elite's enemies. From what I understand the Banksters do not like Japan because they finance most of their own debt. I am going to Pinch myself again in the morning and ask myself it this whole thing is a dream or something. 

Either way, I am 100% cash in these markets. Why would anybody own stocks now ?!!!?!!!?  Physical PM's only.

P.S. If you think what they say about Haarp being used against Japan is amazing, you should listen to what the conspiracy theorist say about what they have planned for the U.S.  

Michael's picture

Is this kind of waht it looks like?

Wall Street + Federal Reserve Corporation Theft = World Economic Collapse 

Michael's picture


My Youtube just went blank! This is the second thought police attack on me this week.

Time to reinstall java and flash player again.

-Michelle-'s picture

Only on its own network.

Michael's picture

I just reinstalled the adobe flash player and it fixed it.

Michael's picture

 I know who you junkers are. You can run but you can't hide.

Sudden Debt's picture

ppffftt... morons who think it matters.

I see it as a popularity quote :)


asdasmos's picture


William the Bastard will be glad to hear this.

Ident 7777 economy's picture

Damn! Look at them accumulate! A higher count every time the screen is refreshed!

You've got friends!

Blano's picture

You way, waaaayyyy overestimate your importance.

Michael's picture

Importance is relative.

Paul Krugman's picture

But Cramer just told me to buy buy buy.

ZeroPower's picture

Red open on ES and wow

adeptus's picture

Excuse my n00b question. ES = ??

adeptus's picture

Thanks, "ES" was too short of an acronym to google and get any obvious answers.

ZeroPower's picture

Its the S&P futures which trade all day/night.

Edit: yup ditto to above

slow_roast's picture

Goldzilla bitchez!

Zero Govt's picture

Godzilla joined the bailed out Japanese zombie bankers on a flight out of Tokyo last night ...meanwhile the Jap Govt pushes aside safety standards and ask the peasents to risk their lives trying to rectify their political mistake siting nuke plants on the coast ....this is how it works, what a wonderful world

John McCloy's picture

Complacency is a sin. Surely this an oil prices will wipeout Ben's "wealth effect".

tallen's picture

Might want to look up when you walk past GS/BAC HQs, there's gonna be some falling bankers.