Blame the yen? ‘Epic leverage’ in commercial shipping ‘beyond market’s wildest dreams’: Boockvar

A weak US jobs report on Friday and the idea that the Federal Reserve has fallen behind the curve by holding off on an interest rate cut gets much of the blame for the market’s downtrend, but the resumption of highly leveraged trading is intensifying volatility, the market. said the observers.

The transactions made focus on borrowing at a low interest rate and using the proceeds to buy higher yielding assets. A popular carry trade focused on Japanese yen loans, where the Bank of Japan has kept rates at ultra-low levels for years. As the Bank of Japan began to tighten policy, the Japanese yen rebounded from multi-decade lows, forcing traders to exit carry trades and shed other assets, exacerbating a global selloff in stocks and other assets perceived as risky.

In a note, Peter Boockvar, chief investment officer at Bleakley Advisory Group, said that while he had long derided the Bank of Japan for stopping short of “excessively easy” policy in the face of rising inflation, he had “never in the market’s wildest dreams and any analysis I’ve done had any idea of ​​the epic leverage that’s been built up in the yen carry exchange, which is now clearly evident in the relaxation.”

U.S. stock index futures pointed to a sharply lower start for Wall Street, while Japan’s Nikkei 225 fell more than 12 percent on Monday for its worst day since the stock market crash of 1987.