HT up front: the morning crew at Ms Kaminska's The Blind Spot who have an extended excerpt of the Deutsche note. Link after the jump.*
From Channel News Asia, November 14:
....MUCH MORETOKYO: Japan's government is engaged in a massive US$20 trillion "carry trade" - the funding of loans and foreign assets by borrowing low-cost yen - that could bring unexpected risks if the central bank tightens policy, Deutsche Bank analysts warn.
Using research by the San Francisco Federal Reserve and International Monetary Fund, Deutsche's head of currency research George Saravelos analysed a consolidated balance sheet of the Japanese government including the government-run pension fund GPIF, the Bank of Japan (BOJ), and state-owned banks, showing the asset-liability mix of its US$20 trillion debt.
That debt, Deutsche Bank found, amounts to an enormous "trade" invested abroad at high interest rates and funded by low-rate, short-term borrowing in yen.
As expectations grow for the Bank of Japan to exit its ultra-loose monetary stance, Deutsche Bank's report says it is crucial to understand the potential consequences of this huge trade, not only on the government's balance sheet but on savings and assets held by households.
The yen has traditionally been a favourite funding currency for carry trades because of Japan's low interest rates, and market participants expect investors globally to unwind hundreds of billions of dollars of such trades if and when the BOJ exits its ultra-easy monetary policy.
Deutsche Bank's report extends that scenario to include the Japanese government and its balance sheet....
*Spot Markets Live, 14/11/23 ( Tesla, Japanese Carry Trade, Catalonia)
