Central Banks Turn “Hawkish”, JPY Carry Trade Emerges

Central Banks Turn “Hawkish”, JPY Carry Trade Emerges

Central Banks Turn “Hawkish”, JPY Carry Trade Emerges


Cable, Loonie and EUR all rose last week on Hawkish comments from central bankers.

The BOE Governor Mark Carney said it is not the time of rate hike yet. Then indicated the BOE MPC will start debating raising interest rate in the coming months.

BOC Governor Stephen Poloz said that prior rate cuts in Y 2015 have already done their job. Then, hinted that BOC is approaching a new interest rate decision. Lifting the odds of a July rate hike

ECB President Mario Draghi’s comments cause “jitters” in the market, as the ECB is transiting into a phase of stimulus withdrawal, and that there will likely be tapering announcement in September or by latest October.

All of that had the Japanese Yen the weakest, as BOJ is expected to maintain its stimulus as inflation at 0.4% Y-Y is still far off it’s 2% target.

Last week global bond yields rose sharply, giving additional pressure to JPY.

USD followed as the 2nd weakest as markets doubt if Fed is ready for another rate hike in September.

The IMF downgraded its US economic forecast, citing the removal of assumed fiscal stimulus, is a clear sign that economists are giving up.

The Japanese Yen decoupling from risk aversion

A Key developments in the financial markets caught our attention here at HeffX-LTN.

That being the decoupling of JPY and stocks.

Global equities fell sharply on expectation of monetary policy tightening ahead. But this time, there was no risk aversion boost to JPY seen, nor on Swiss Franc (CHF).

This may be a sign that widening yield spread and their attraction on carry trades is finally back after the last several years. And yield spread could be starting to have a much stronger impact on JPY than risk sentiments.

Have a terrific week.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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