The Fracturing Carry Trade

Updating our view on USD/JPY dynamics.

At the beginning of September, we explained why we thought USD/JPY could trade higher, based on a new PM pushing for lower interest rates, the continued appeal of owning US foreign assets, and US rate pricing being too dovish.

Since we posted the note, USD/JPY has rallied by over six figures, trading just shy of 156.00. However, we now intend to adopt a much more neutral stance.

Although we feel some of the doomsday outcomes of a financial meltdown in the next month driven by spiking bond yields are farcical (albeit suitable for virality), we believe the carry trade is becoming less attractive from a risk-adjusted standpoint.