Market 08/02: The entire market turns to Japan with fears of a credit crisis

The collapse of Yen Carry Trade

Summary:

• Since the 1990s, the Japanese government has done everything to keep the Yen value extremely low

• Most investors worldwide took advantage of this to borrow Yen at low interest rates and invest for profit, mostly in US bonds or US stocks. This is called “Yen Carry Trade”

• Last Friday marked a huge change in the Japanese government's policy, causing Japanese bond yields and the Yen's value to rise sharply.

• Immediately, US bond yields surged for 3 consecutive days with the 10Y breaking through 4.0%, causing major concerns for stock investors.

• Yesterday, Fitch downgrades US credit to AA+. This could cause bond yields to continue rising in the short term.

Job openings drop to lowest level in 2 years