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 ...
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