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The last Samurai

Oct 24, 2022

Last Friday the Japanese Yen reached a 32 year low against the USD. For the hedge funds exploiting the interest rate differential between the 2 currencies, this was the clearly the carry trade of the still young decade. Looking at the graph below and the risk of further interventions by the BoJ, we come to the conclusion that the trade may soon become the victim of its own success. For the Japanese economy the damage has however been done. As it is heavily dependent on imports, the weak currency results into imported inflation and shrinking margins for the companies. No easy way out for Japan.

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