Edmond de Rothschild's Nizard builds the carry-unwind case on a 3% yen month

Eight yen is the whole of the move. Dollar-yen went from around 160 early in September to the 152 range on the 8th ^[16], which works out to a 5% appreciation in the yen ^[18], and the account puts the pair at 154 ^[17], so about a quarter of the run has already gone and 3.75% is what is left from the starting point ^[19]. A higher dollar-yen number means a relatively weaker yen ^[20].

The trade in question is old and plain: borrow yen at Japan's low rates, buy higher-yielding assets abroad, and reverse when the yen appreciates, because appreciation raises the incentive to convert those overseas holdings back into yen ^[9]. Five percent on the funding leg is a lot against most carry income. The report did not disclose position sizes or the width of the US-Japan rate gap ^[21], so that netting cannot be done here.

Michael Nizard, who runs multi-asset and overlay at Edmond de Rothschild Asset Management ^[2], is arguing a change of driver. "The yen may have started trading again as a genuine fundamental currency," Nizard said ^[4], and his report attributes the move to fundamentals, not to the rate gap or to the yen's role as carry funding ^[3]. The first reason offered for September's move, though, is an expected acceleration in Bank of Japan rate increases ^[7]. That is the rate gap seen from the Tokyo side.

"Every correction in the yen should be seen as an opportunity to rebuild or expand long yen positions," Nizard said ^[5]. He also said the repricing will not be linear, with periods in which the rally stalls or the yen weakens again ^[15]. Taken together that is an entry rule that survives any price, and Nizard's further expectation is that these shifts reduce how much global markets depend on cheap yen funding ^[12].

I would want flows before I took the conclusion. The selling of Treasurys, corporate bonds and equities in Bloomberg's account is conditional, something leveraged investors could do as they cut exposure, and nobody has measured it happening ^[10]. The pension reallocation is described as a prospect ^[7]. The case breaks if dollar-yen retraces the full eight yen back to 160, if the Bank of Japan does not deliver the acceleration investors are pricing, or if Japanese institutional money stays offshore.