Yen Carry Unwind Stalking Stocks

by: Danielle Park, CFA

The Japanese yen rebounded against the US$ from June 2007 to March 2009 (left green arrow below) and prompted highly levered traders to unwind negative carry by selling stocks (S&P 500 in navy) and paying back yen-based speculation loans.

More recently, the yen bottomed against the greenback in mid 2015 (far right green arrow) and the S&P has wobbled, but so far levitated near its highs.

Another scene of interest here is the most recent dshort chart below showing NYSE margin debt (in red) and the S&P 500 (in blue) as of the end of March. From the biggest record-ever-in-human-history-highs in April 2015, margin debt has come down 14.3% to date and 2.7% month-over-month.

What happens next? We watch this horror show with interest while peering through fingers over our eyes…pass the popcorn.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.