The Short Yen Trade Is The Hottest Trade In The World But There's One Big Risk To It
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It's the hottest trade in the world right now: betting the Japanese yen will decline against the U.S. dollar.
As part of the Japanese government's new "Abenomics" strategy to lift the Japanese economy out of a decade of deflation, the Bank of Japan (BoJ) recently announced a massive quantitative easing program, unprecedented in scale.
Investors – especially those outside of Japan – have taken this as a sign that the Japanese government and the BoJ are serious about weakening the yen and inducing a little inflation.
A mini market crash caused by a fake AP tweet earlier this week showed how correlated the short yen trade is with risky assets in general right now. While the S&P 500 tanked in response to the tweet, the yen instantly strengthened against the dollar.
And since so many investors are now using the cheap yen – which has already weakened considerably in recent months – to fund carry trades in other risky assets, it's important to consider what else could derail the short yen thesis, which has become one of the most "consensus" trades on the planet.read more ...