Yen carry commerce: Get prepared for months extra market chaos, says Wall Street financial institution
The turmoil in global markets could last for months, a Wall Street bank has warned, amid efforts to close so-called “carry trades” which have been heavily squeezed.
Analysts at Bank of New York Mellon (BNY) said major investors face further pain as the Japanese yen will likely strengthen further.
Stocks have faced huge volatility this week amid fears of a recession in the US and a squeeze on major investors grappling with the recent surge in the yen.
The currency has risen after the Bank of Japan unexpectedly increased interest rates for only the second time in 17 years last week.
This squeezed margins on carry trades invested in the yen and forced investors like hedge funds to dump stocks in a race to meet their risk requirements.
Earlier this week, JP Morgan suggested the unwinding of these carry trades was only three-quarters complete.
Bob Savage, head of markets strategy and insights at BNY, said: “Expect the pain for yen shorts to remain in play for the weeks, if not months ahead.
“Further risk reductions are going to follow and August will continue to be a highly volatile month.”
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