The $20 Trillion Carry Trade That Will Destroy Japan

It’s only appropriate that on the day we are witnessing another earthquake in the Japanese yen, as momentum-chasers who were convinced USDJPY 160 was imminent are carted out head first after today’s 400pips drop (on what is nothing but another round of fake news speculation that the BOJ will hike rates in its December meeting, spoiler alert: it won’t), that we look at the bigger picture at how, while entertaining, these daily swings in the USDJPY are very much irrelevant because, well, Japan is doomed to either hyperinflation and currency collapse, or alternatively, market collapse and loss of social cohesion.

Why? Well, as DB’s chief FX strategist George Saravelos explains, when one strips away all the political BS, the government of Japan is engaged in one massive $20 trillion carry trade.

And while today everyone is talking about the BOJ hiking rates as soon as December in its attempts to normalize, the DB strategist argues that it is impossible to understand the consequences of Japanese monetary policy normalization without analyzing what it means for this carry trade.