CHAPTER 9Carry Trade II: Extremely Long Dollar Love

Revolutions happen when broken parts of existing structures reassemble themselves in novel ways. Today’s Japanese carry trade will become something completely new: currency jettison—fundamentally changing Japan. The revolution will be driven by exchange-rate volatility hedging, handcuffing the government, and going for full-on dollarization. When that happens, shorting yen will be the best trick on the planet.

Dollarization to control currency volatility happens often. It is not even a radically new event1 in Japan, but it will go viral and mutate into something not seen in generations. The utter abandonment of the yen as a derisk will end any return crashes. And the Japanese semidemocracy (this ...

Get Tail Risk Killers: How Math, Indeterminacy, and Hubris Distort Markets now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.