The global markets have seen high levels of volatility since last week with many pundits quick to blame the Bank of Japan raising interest rates, thus causing the yen to strengthen against the dollar, ergo triggering an unwind of the yen carry trade.
No one can say how deep the yen carry trade pervades global markets and as such, no one can say with certainty whether it has been completely unwound.
That said, now that some hindsight is available to provide more clarity on recent market volatility, some consensus views have started to form to allow a more nuanced view.
Below are three such views, each offered by well-versed Japan market observers.
BOJ Governor sends dovish signal says Bloomberg’s Paul Dobson
Key Takeaways:
The Bank of Japan (BOJ) sent a strong dovish signal following a significant stock market decline.
Timing issues with U.S. data and Fed actions have complicated the BOJ's efforts, causing yen strength.
The BOJ wants to normalize monetary policy without causing further market volatility.
Jefferies’ Global Head of Equity Strategy Chris Wood on BOJ's monetary policy
Key Takeaways:
BOJ's move to normalize monetary policy is correct and overdue.
Delayed normalization increases the carry trade and potential disruption.
Correction in Japan is technical, not fundamental; exacerbated by lack of domestic institutional support.
Japanese stock market dominated by foreign, often leveraged, investors.
Lack of domestic institutional support leads to increased volatility.
Comments seen as reactive, possibly due to external pressure, including from the U.S.
Coincided with weak U.S. employment report, adding to BOJ's challenges.
BOJ faces political pressure to normalize policy due to weak yen causing rising prices and declining real wages in Japan.
Bloomberg’s Mohamed El-Erian on BOJ's actions
Key Takeaways:
BOJ intended to pause rather than rewind monetary policy.
Suspected significant external pressure on the BOJ amid market turmoil.
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