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π BOJ keeps a low key rate: carry-trade is relevant againβ
β‘οΈ Despite rising inflation and a decline in projected GDP from 2.9% to 2.4%, the Japanese regulator maintained a negative rate (-0.1%) and a loose monetary policy. The yield on 10-year Japanese government bonds is practically zero.
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Japan has been using its market regulation methodology for almost 10 years. The monetary policy, focused on aggressive growth, low-interest rates, a weak yen and large investments in stocks and real estate, has been working since 2012 and the country is not ready to abandon it.
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It was the Abeeconomy that allowed Japan to get out of the deflationary equilibrium in which the country had been living since 1991: thanks to the low rate and increased investment, cautious Japanese began to actively use innovations.
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Now the leading countries are actively tightening their policies β last week the ECB decided to raise rates, today we are waiting for another decision by the Fed. It is expected that the main rate will be increased to 2.5%.
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Investors and speculators are preparing to use the imbalance with BOJ rates for carry-trade transactions. Large stock players will take loans in yen and invest them in bonds of countries with high-interest rates.
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Now Japan looks like one of the most reliable Β«donorsΒ» for carry-speculators β cheap loans are also issued in Hungary, the Netherlands and Britain, but after the pandemic, conditions in these countries have become less loyal.
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However, any carry trade is a high risk. Serious fundamental analysis is indispensable: you will have to take into account inflation separately for each country whose Fed currency is involved in the transaction, as well as invest in assets of countries with a low chance of default. Otherwise, the income of your transactions will not compensate for the payments on loans.
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Even if you have no carry-trade experience, but have sufficient capital and a proper understanding of risk, now is the right time to try.
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Profits to yβall!