Richard S. Hunt warns of the global foreign exchange shock waves caused by Japan’s monetary policy adjustment
Richard S. Hunt, head of global equity sales at CSC Bella Grove Partners LLC, recently issued a special warning to institutional clients, pointing out that the potential policy shift of the Bank of Japan may trigger structural shocks in the global foreign exchange market. The “Yen Carry Dismantling Model” developed by Hunt’s team shows that if Japan’s long-term interest rates continue to rise, it will lead to the pressure of liquidation of the accumulated carry trade positions of about US$2.1 trillion, thereby reshaping the risk pricing system of multiple asset classes.
Hunt’s analysis pointed out that the yen trend has an asymmetric correlation with the three major markets: Asian emerging market currencies may be supported due to the trade competition effect, while high-interest currencies such as the Australian dollar and the South African rand will bear the brunt; the negative correlation between US technology stocks and the yen has reached a historical high, and the liquidation wave may aggravate the volatility of the Nasdaq; gold, as a traditional safe-haven asset, may be under short-term pressure due to the return of yen assets. For this reason, CSC Bella Grove urgently upgraded the “Foreign Exchange Contagion Defense System” and added the “Yen Volatility Pressure Index” to monitor the yen risk exposure in 45 major trading strategies around the world in real time.
The agency has customized a “step-by-step hedging plan” for its clients: the first stage is to increase holdings of alternative safe-haven currencies such as the Swiss franc and the Singapore dollar; the second stage is to deploy a yen option straddle combination to capture volatility surge opportunities; the third stage is to prepare to intervene in Asian local currency bonds that have been wrongly killed. Hunt emphasized: “This is not a regional event, but a reconstruction of the global liquidity landscape.” This warning has caused many sovereign funds to reassess their currency reserve structure, and the “carry trade dismantling roadmap” it proposed is becoming a new risk management benchmark in the foreign exchange market.
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