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The $4 Trillion Unwind
How big's the yen carry trade?
In recent days, the existential character of that question dawned on a lot of previously oblivious -- or anyway uninterested -- market participants who suddenly woke up to the structural nature of the positions in question.
About a month ago, the yen's fortunes turned on a dime, presaging what would eventually crescendo in an 11% rally for the funding leg (i.e., the short leg) of what SocGen's Kit Juckes called "the biggest carry trade the world has ever seen."
I wonder how much of these positions, and especially the third, will be unwound.
If you’re a Japanese investor holding ex-Japan equities or fixed income, and haven’t already been forced to liquidate by your risk managers, seems more likely you have a mandate that requires that you to hold that exposure, or are a longer-term holder for whom the past weeks’ losses are irritating but not game-changing.
Yeah. It’s very difficult to get a read on this. So much of what’s “on” at any given time is a carry trade, implicit or otherwise, and more to your point, domestic (Japanese) investors aren’t a monolith. If you didn’t get a shoulder tap in a VaR shock of that magnitude, then no one’s looking over your shoulder.