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
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.
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.
I think that you are right. The most probable reason was the fall in the value of the yen.
However, no one is saying!
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.