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THE RETURN OF THE CARRY TRADE

ADMIN || 17th August 2024

With BOJ outlook on near term hikes totally dim (due to political issues as well as BOJ’s own dilemma because of domestic equity volatility) & a relatively well performing US economy both in terms of consumer demand as well as employment nos, carry trades are back with a bang. They have a window to operate freely till Dec as BOJ is likely to stand pat till it’s Dec meeting. They might get further confidence if Fed Chair Powell speaking on 23d August at the Jackson Hole meeting pushes back against the current market pricing of 96 bps cut in REMCY24. BOJ Governor Ueda is also speaking in the Japanese parliament on 23rd August. If Ueda sounds dovish & Powell sounds relatively hawkish, the interest rate differential between US & Japan will be more than enough for carry traders to put on another round of trades. Momentum begets momentum.

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