Growing worries over an unwinding of the yen carry trade are set to weigh on global asset markets
Experts have voiced concern that if the Bank of Japan raises rates, the threat of an unwinding of the yen carry trade will grow.
In particular, Rep. Tamura Naoki's attendance at the Jackson Hole symposium and reports that Japan's government bond yield has broken above 2.9% are amplifying this unease. Analysts say this could lead to greater volatility in global asset markets.
Experts also stressed that semiconductor investors should watch the macro environment as well as company fundamentals. Multiple valuations for stocks are set by the market, and these depend on the macroeconomic backdrop, including the interest rate environment.
They added that it is important to assess how changes in the yen's value could affect investment assets and to check how much of one's own portfolio is exposed.
Japan pursues its policy by giving ample advance notice before raising rates. This minimizes the impact on markets while giving market participants time to prepare.
This gradual, pre-announced approach makes markets more sensitive to each signal, and with the probability of a September rate hike put at around 80%, market attention is intensely focused.
Through this process, investors can earn profits from the interest rate gap, and any rise in the value of dollar assets brings additional gains.
However, if Japan raises rates and the gap with U.S. rates narrows, investors sell their assets and convert back into yen. This can trigger a large-scale carry trade unwind and cause turmoil in global asset markets.
This is a point where investors can easily become confused when reading exchange rate indicators.
Experts noted that as this figure approaches the 140 level, the likelihood of a yen carry trade unwind could increase. In other words, a rise in USD/JPY means the yen weakens further, which can be read as a signal that the incentive for the carry trade is shrinking.
As this yield gap narrows, the appeal of borrowing yen to invest in dollar assets declines.
Changes in this rate differential can trigger a carry trade unwind, which could have a significant impact on global capital flows and investment markets.
Answers come from the transcript, with the exact spot cited.
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