Japan just signaled the carry trade is on borrowed time Takaichi's govt is now quietly backing a BOJ rate hike. Sept or Oct looks live, markets pricing ~74% odds for Sept 18. Rate's at 1% now, hike would likely take it to 1.25%, the fastest pace of tightening since 1989. Bigger deal than it sounds. Here's the mechanic: the yen carry trade is basically borrowing money in Japan for next to nothing, converting it to dollars (or other currencies), then parking it in higher yielding stuff like US stocks, EM bonds, whatever pays more than your JPY loan costs. The trade only works because Japan's rates have been near zero while everyone else's aren't. Free money to fund it. TBH, even at 1.25% Japan's rates are still way below most of the world, so nothing here breaks the trade on fundamentals. But it's all about optics, and bad optics is sometimes all it takes to start an unwind.(Lark Davis)