That was some carry trade...

I've talked a lot about the BoJ, JGB's and the yen this year emphasizing the importance of the shift in policy for not just Japan but global markets. Also I constantly ridiculed the BoJ all year as they redefined the word 'patience' when it came to unwinding their excessively easy money in the face of persistent inflation. That said, never in my wildest market dreams and any analysis I've done had any idea to the extent of the epic leverage that was built up in the yen carry trade that is now clearly evident in the unwind. That we have to repeat saying 1987 and market crash in the same sentence is truly stunning as is the global nature of this trade. We have seen just another central bank overdue it with their easing, a massive amount of excess built up as a result and now the nasty unwind. 

Corporate Japan though has made some important changes for the better over the years in terms of returns on equity, unwinding share cross holdings, corporate governance, a focus on shareholder value, etc... so Japanese stocks will rebound but again, these moves are quite stunning. 

The 10 yr JGB yield fell a very sharp 16 bps to .79% and the yen continues to rip.

And by the way, 1987 is not the only reference in global markets. The Taiwanese TAIEX, lower by 8.4% overnight, had its worst day since 1967. 

I hear people blaming the Fed for this but Japanese stocks just crashed because of the yen rip not because of the Fed and even at the open, the S&P 500 is still around 5200, still up from 4770 year to date, a gain of 9% not including dividends. I've also heard people opining on whether the Fed is now going to have an intra-meeting interest rate cut and I put the odds of that at about zero. It would smack of panic and would actually make the situation worse.