Japanese interest rates are going up and U.S. and European interest rates are coming down.
The market correction in Europe and the U.S. is coming from a crash in Japan. I explained the basics of this in a YouTube video last Friday on David Lin’s show. Nice timing and all that but what now?
Firstly what is happening? Japanese interest rates are going up and U.S. and European interest rates are coming down.
That’s bad news if you are doing carry trades where you borrow in cheap yen, sell the yen into dollars and buy assets with yield or with fancy upside or both, then hedge the currency risks and reap the free money in the high yielding returns.
This is what carry trades are all about and there are trillions of them based on 0% interest rate yen.
But the yen has dived and the Bank of Japan doesn’t like its more than 2% inflation so is getting into raising interest rates to firm up the yen.
However, Japan is stuffed…
