EVEN THE US TREASURY SECRETARY IS NOW WARNING ABOUT YEN CARRY UNWIND.
Scott Bessent said a disorderly, sharp decline in the yen could set off forced unwinds of major trading positions. He warned this could spread stress across global markets, not just Japan. The end result, he said, would be higher borrowing costs for US households and businesses. This warning comes in a letter responding to Senator Elizabeth Warren, who questioned the US and Japan's joint intervention to defend the yen last month. The yen is already weakening again, sliding back toward 160 per dollar. That is the same level that triggered the original intervention just weeks ago. Bessent also pointed to Argentina, saying the Treasury used the same emergency fund last year to stop a currency crisis there before it spread further. He says Acting early is cheaper than waiting for a full blown crisis. If the Treasury Secretary himself is this concerned about the fallout, the risk here is bigger than markets are currently pricing in. Source: Bull Theory
"I only invest in what I fully understand."
Meanwhile, the U.S. Dollar 👇 Source: Bitcoin archive
U.S. Dollar 15-Year Trendline It's Now or Never
Source: Barchart
For decades, the Japanese yen has been the funding currency of choice for global carry trades.
But as volatility in Japan rises and the Bank of Japan gradually moves away from ultra-low interest rates, investors are increasingly looking for alternatives. One currency is emerging as a natural candidate: the Swiss franc. The logic is straightforward. Swiss interest rates remain close to zero, making the franc one of the cheapest major currencies in the world to borrow. At the same time, the Swiss National Bank remains attentive to excessive currency appreciation, reducing—at least in investors’ eyes—the risk of a sharp and uncontrolled strengthening of the franc. Positioning data suggests traders are taking notice. Hedge funds have pushed net short positions in the Swiss franc close to a two-month high, while speculative short positions in the yen have declined for a second consecutive week. The performance differential is already becoming visible. Over the past month, a carry trade funded in Swiss francs and invested in the Mexican peso would have generated a return of roughly 4%, compared with around 1.3% for the same trade funded in Japanese yen. The yen is unlikely to lose its status as the world’s dominant funding currency anytime soon. But the backdrop has changed. Expectations of higher Japanese interest rates, combined with the persistent risk of currency intervention, have made yen-funded carry trades less predictable. By contrast, Switzerland combines extremely low borrowing costs with relatively low interest-rate volatility. That is putting the franc firmly back on traders’ radar. There is, of course, a striking irony in all of this: one of the world’s ultimate safe-haven currencies is increasingly being borrowed to finance risk-taking elsewhere. The Swiss franc may still be a refuge when markets panic—but in calmer times, it is increasingly becoming the fuel behind the carry trade. Source: Bloomberg
Speculators are now the most long on the U.S. Dollar in more than a decade
Source: Barchart
Bessent’s selling of EUR to buy JPY, and US threats to weaponize USD stablecoins against the EU may be triggering some unforeseen blowback.
Source: FT, Luke Gromen
US intervention has failed this time
USD/JPY is now back to the same level where the US intervened to strengthen the yen. Also, USD/JPY rallied almost 0.9% yesterday, its biggest daily gain in 5 months. At this pace, we might see USD/JPY above 164 in a few weeks again. Source: The Macro Paper
Japanese yen weakened past 158 per dollar.
Japan’s current account unexpectedly swung to a ¥923B deficit in June, its first since January 2025, versus expectations for a ¥1.512T surplus. Yen is currently the weakest G-10 currency in August as the effect of the joint US-Japan intervention fades. Bank of Japan also flagged rising inflation risks in its July summary of opinions, with one board member saying rate hikes could come faster. Source: Bull Theory
