📝 Yen Carry Trades Remain Present: UBS Strategy

USDJPY hit 151,665 Monday Asia morning on Electronic Braking Services (EBS). Some market participants are now looking at 151.94, a 33-year low. Some believe that the yen would appreciate as the US interest rate hike might come to an end, but it seems like the yen should continue to depreciate as yen carry trade is regaining momentum. Some indicators last week showed the yen's weakening phase may have ended. 1) The US October jobs report revealed a slowdown in the labour market. 2) The US long-term rate fell sharply due to economic outlook uncertainty. 3) Higher crude oil prices, a factor contributing to the yen's depreciation, also paused, and WTI oil futures fell to a four-month low (decline in oil prices is set to reduce the value of Japan's imports). However, the yen continues to weaken, this is likely due to the existence of yen carry trades. Short-term interest rates in Japan are currently in slightly negative territory, while in the US it's above 5%. In other words, the point of profit or loss for this transaction is whether the yen appreciates by 5% per year (looking at 151, that's about 144). Since it is unlikely that the yen will accelerate to that level, many investors are quick to buy dollars on dip. The biggest risk to the yen carry will be intervention to buy the yen. MoF top currency official Masato Kann stressed shortly after the yen's depreciation accelerated to about 151.74 that they were on "standby". Therefore, some market sources consider about 152 yen as the government's intervention line. - UBS Strategy