The Japanese Yen carry trade has been very much in the news. Recently, our good and faithful (to his boss) Treasury Secretary sent $10 billion of your dollars over to the fine folks in Japan to get some sweet, sweet Yen since, let’s face it, the Japanese Yen has proved itself to be a banger of a store of value.
Your hero described this act as “a sign of friendship“, so, yeah.
Anyway, the effect on the Yen’s value was immediate, as you can see from that jolt below.
I won’t go into the plumbing in detail (mostly since I have a rudimentary grasp on it and don’t want to embarrass myself), but the overarching hope is that the U.S. would really appreciate Japan not dumping our bonds non-stop as they’ve been doing for years, and they are willing to try to prop up the Yen, and damped down Japanese interest rates, toward that end.
Looking at this chart of the USD/JPY, I think the effect of this recent investment will be, to borrow a Bernanke word, transitory.
More directly, if the endgame is to stave off the continue crumbling of bonds, I think the charts are already showing that they might as well give up.
My view is that much higher interest rates are on their way, and the likes of the TLT will continue to move downward, continuing a bear market that, incredibly, is well into its seventh year.
