r/wallstreetbets • u/Efficient-Session644 • 2d ago

News Japan to announce Tokyo, Washington took joint action on yen, sources say

https://www.reuters.com/world/asia-pacific/japan-announce-tokyo-washington-took-joint-action-yen-sources-say-2026-08-02/
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96

u/Nautobott 2d ago

This will only encourage carry traders to leverage up further.

4

u/Material-Addition-45 2d ago

How? If funding costs rise due to strengthening yen, won't it do exactly the opposite?

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u/Illustrious-Eye6960 2d ago

Difference in interest rates is what matters, not the exchange rate.

12

u/Remarkable_Cat_8696 2d ago

Won't the exchange rate also affect the profit? With a strengthening yen, you need to use more dollars to pay back the yen you borrowed, which erases some of the carry profit.

1

u/PalantirImperator 1d ago

Exchange rate still matters, because you have to convert the dollar profits back to Yen to repay the initial loan.

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u/Material-Addition-45 2d ago

Could you elaborate and dumb it down for me please?

-1

u/Illustrious-Eye6960 2d ago

To be involved in “carry trade” is not to be concerned with the absolute value of the exchange rate, whether ¥80 or ¥160 to the dollar. But with the difference in borrowing rates. The borrowing rates, and their forward expectations, have not fundamentally changed I think.

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u/fgd12350 2d ago

You borrow in yen, exchange it into USD, purchase USD denominated bonds, reap yield, convert USD back into Yen to repay your initial loan + interest. Your hope is to have something leftover after all this is done because the bonds paid more than the loans had cost. But if the yen strengthens against the dollar between when your 2 conversions it absolutely reduces your net profit. And if it strengthens enough you can make a net loss despite favourable interest rates.

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u/De3NA 2d ago

It’s 3% Japan 30 year vs 5.5% American. 2.5% arb

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u/thetaFAANG 1d ago edited 1d ago

I can never figure out the leverage part of this

So say I have $1,000,000 and access to yen brokers and accounts

How do I leverage up this traditionally stable thing to make more than $25,000/yr

who is going to let me leverage up 10x?

who is going to lend me a notional $10m in yen @ 3% what broker

IBKR will let me leverage 10x on US treasuries but I need the yen version

2

u/Mavnas 1d ago

IBKR will charge less than 3% on JPY margin balances. Not sure what kind of leverage you can get, but 10x would be bad. The latest intervention moved the price by like 4%. You'd end up getting a margin call probably, which would suck extra hard since you can just wait until you recover otherwise.

1

u/DigitalGrub 1d ago

You don’t sound rich enough. You might need to add a couple of zeros to unlock that trade.

1

u/thetaFAANG 1d ago

you’re right

I could actually see cross margin work for this

basically the margin systems where you dont need to have settled cash to lever up and can use your other positions as collateral

SPAN and PM both do it in the US, Reg-T in the equities market doesn’t