Surprise move in yield curve control:
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The Market 's reaction to fear reminds me of Turtles and Ostriches.
Turtle: pull head into shell
Ostrich: stick head in the sand
Market: sell
The Captain
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I’m just wondering about the effect on the yen carry trade as there has been a 100% increase in the cost of borrowing!
The 100% figure is not the same thing as 100. It is a small nominal amount.
The appreciation in the Yen is well under way. it broke out two days ago.
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It’s still a 100% rise in cost!
Commercial banks who undertake the yen carry trade are highly leveraged and this must put a considerable strain on their operations.
In addition, the Bank of Japan is possibly now insolvent because of the rise., but then, I suspect quite a few other central banks are as interest rates increase elsewhere.
I’m puzzled why the BofJ did this.
When they do stuff like this, it’s usually because they don’t really have a choice. Kind of like our fed, they resisted raising rates for a very long time … until they HAD TO do it.
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Hi MarkR
I think that you are right. The most probable reason was the fall in the value of the yen.
However, no one is saying!
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No the move is constructive. The industrial input costs will be dropping further in relative terms. The industrial products add value. This is a rise longer term for Japan.