The Yen Carry Trade Looks Appealing Again: 3-Minute MLIV

Walk us through that trade in the context of what we're hearing out of Japan, the oil markets, where does the Trump trade exist? Yeah, so I think a really big focus is going to be on U.S. markets this week. So we're having kind of, obviously, the setup today, we're thinking more about Japan, we're thinking about the yen and dollar-yen. But when we're looking kind of at the Trump trade, it's really kind of been in those U.S.-associated assets. So we're looking at the dollar. The dollar has been very kind of, I would say volatile, based off this idea of do you see kind of a Trump presidency that favours tariffs, which would be something that would be dollar-supported? Or do you see something that actually creates so much volatility, perhaps around kind of a disputed election result, that the dollar is not its haven of choice? But when you then look around at kind of where the other havens of choice might be, you're looking now at the yen, and perhaps it's less stable there. So I think it's been really interesting kind of seeing that sort of setup coming into a week where people are going to be looking, or two weeks in fact, people are going to be looking for stability of the havens, that the yen is now really not one of those places that they might look. And I think there where we're really starting to talk much more about whether we see the re-establishment of the carry trade. It feels very much like we're kind of going back in time to three months ago, where we hadn't then seen the BOJ doing its second hike. We hadn't kind of seen some of this election instability come through. And we were actually sort of seeing kind of the yen very, very weak. We're now back to those levels, which starts to bring intervention back into the playbook. So it may be already kind of a stressful 10 days ahead, and it feels like it's about to get more stressful. So the yen is down 6 tenths of a percent versus the US dollar at 153. It's paired some of the heavier losses of the session. What is that intervention level for you? What is the level that you're looking at? Yeah, so like 157 to 160 was kind of where they were intervening earlier this year. We're, as you say, kind of around 153. So we've got a ways to go. But the fact that we have now kind of retraced all of those gains that we saw kind of after that last BOJ hike, and when we saw the big unwinding carry, to me suggests that we're going to start to see people establishing new positions, new short positions. And indeed, we did see that last week kind of heading into the election. Hedge funds switched to being kind of bearish on the yen for the first time in a month. And indeed, Nasdaq futures up 6 tenths of a percent this morning. I just want to come to oil finally because of the developments in the Middle East. Citi downgrading the Brent forecast to $60 a barrel. How much further downside do you see, especially when you factor in the China story, the downside risk there? Yeah, I mean, oil is always kind of this question of supply and demand, right? And I think a lot of the fundamentals for oil are pretty negative at the moment. You have the potential for OPEC to be pumping more, so they're bringing a lot more supply into the market. And then as you point out, you've got that demand picture. And I always like to look at kind of commodity currencies when thinking about sort of oil. And so seeing today, there was really very little shift. So I think what you've kind of seen in sort of the Middle East developments is some of the noise being taken out of the market. And that means people are really going to focus on those fundamentals. And as you point out, those fundamentals aren't great. So I think it remains to be seen quite how much further we could go down. But clearly down is where we're headed. All right. We move to Rachel Evans, managing editor for FX and Rates.