For almost three decades now, investors have looked at the economic headwinds faced by the Bank of Japan, at its QE and QQE policies, and at the country’s awful demographics and realised that the obvious outcome is a massive sell-off in Japanese government bonds (JGBs) and a dramatically weaker yen. So ‘obvious’ has this trade been that, at some point, just about everybody in the financial market has been short either JGBs or the yen — or both.
Of course, the main reason for the failure of the Widowmaker trade has been the staunch refusal of the Bank of Japan to ‘allow’ price discovery in JGBs. Over time, its efforts have become increasingly desperate and the distortion of the country’s sovereign bond market more pronounced.
Of course, the main reason for the failure of the Widowmaker trade has been the staunch refusal of the Bank of Japan to ‘allow’ price discovery in JGBs. Over time, its efforts have become increasingly desperate and the distortion of the country’s sovereign bond market more pronounced.
My analysis error.