Bank of Japan - policy change

Surprise move in yield curve control:


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


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.