📉 Yen Strength Threatens Global Markets USDJPY has fallen from 163.

📉 Yen Strength Threatens Global Markets

USDJPY has fallen from 163.98 to 155.31, a 5.3% move in about five weeks. The yen alone is up 2.5% this week, creating a serious risk for global markets.

The trade is simple. Investors borrow cheap yen, convert it into dollars, and buy assets such as US stocks and bonds. Because the loan is in yen, a stronger yen makes repayment more expensive.

At 10x leverage, a 5.3% move against the trade wipes out about 53% of the trader’s cash cushion. At 20x, it wipes out more than 100%. Forced selling, followed by more yen buying, can create a self-reinforcing unwind. The same loop drove the sharp global selloff in August 2024.

Japan has spent $169.5 billion this year trying to control the yen, including $52.8 billion in a single day. Markets now see a 75% chance of another Bank of Japan rate hike this month, up from 24% a month ago. Higher rates make yen borrowing more expensive.

The size of the trade is unknown, but past estimates put it in the hundreds of…

✔️ @venture