Recent Treasury decisions should weigh on the US Dollar. Possibilities to express that view
I confess that I don't understand how the BoJ will exit YCC / their loose monetary policy....
I've been following the theme closely for a long time and only closed my Long USD/JPY late last month. However my views remain consistent on the matter -- I've written a lot on it but these two threads are indicative:
From last September: https://x.com/philoinvestor/status/1567789714467348483?s=20
From this January: https://x.com/philoinvestor/status/1615335485051740161?s=20
They both give great context on Japanese macro and the Yen.
The way you tie these various forces together is super enlightening. Very easy to understand and super helpful. I am blown away and so glad I found this newsletter!
Also good feedback in comments.
I'm in on the trade.
thank you, great take!
something about which I wrote this morning: https://fxpoet.substack.com/p/could-cause-contraction
is the idea that you cannot ignore the possibility that the MOF/BOJ will jump on a declining USDJPY to help push it along. intervention to strengthen a currency is typically well received internationally, especially for one that has fallen so far in such a short time, and it is also far more effective than trying to stop a sharply declining currency.
add that to your discussion on the massive yen shorts that are in place and you could really see a very quick move. in my long career, I have seen a number of 10 yen or more declines in a single session, which would really change the conversation.
What did you want to say by: "These can be rolled, as the cost of carry is relevant given the US-Japan yield differential. " ?
Or think about what we know. We know that the Fed will keep doing QT so that the big blue line in your chart is going down. We know the TGA is likely to relatively stable so that the grey shaded area will stay a similar size. We also know mechanically that the RRP will go slowly down so that the green shaded area will fall a bit. The residual is bank reserves. And if you do the logic, it's hard to see bank reserves growing in the future