Alright now Aug 2nd and both BOJ and FOMC has released their meeting results.

Wanted to update this post and review the whole thing and especially what I could’ve learned moving forward.

July 26 2024

Right now USDJPY hovering around 154, after dropping spectacularly from 162. A 5%+ drop in a matter of 2 weeks.

Got pretty scared since each % is a USD500 unrealized loss which means I’ve lost USD2500 in 2 weeks just from my carry-trades.

Nonetheless here are my observations from the information I gathered:

• The trigger was intervention + weak US CPI data
• US equities and yield overall start to turn sour which lead people to unwind some carry-trades
• The speed and ferocity caused some stops from speculators and carry-traders
• Speculations on a rate hike at the July BOJ meeting

My theory:

• intervention won’t hold the prices
• US will rate cut and BOJ will rate hike but this information was already priced in at the 160 price. Even if it’s coming a little earlier than people thought, the price could’ve moved maybe $2-3 max, not $8-10
• The shake-off of the speculators and carry-traders will slowly come back although probably not building up to previous levels for a while
• A July rate hike is not probable but the market is pricing in 65% right now

Thesis

• USDJPY will hold its ground around the 151-152 support, maybe even hold at 153-154 until the BOJ meeting, worst maybe test 150 but hard to imagine going down from there. If it breaks all hell will break lose but with the JPY weakness I just don’t see it happening
  • update – it did hold 153-154 before the meeting, but after the midnight leak it went to 150-151, and now 149-150 after the FOMC meeting
• It will jump back to 156-158 range after confirming no rate hike, and also of course no rate cut from FOMC
• It will slowly move back up to 160-162 range towards the end of the year, maybe even surpassing previous highs and setting new supports.

Plan of attack

So I’m already out USD2500 and went in the red for my carry trades, which made me doubt myself about the whole thing.

But I heard Howard Marks’ podcast episode about taking risks and trusting your decisions, so I decided I will write a post like this to confirm my thoughts and thesis, and proceed with as much confidence as I can, subdue the fear and if it turns out I’m wrong, I’ll make sure it won’t break everything.

Of course the plan is to long more USDJPY while the market is in fear.

I sold $10k around 156 which was a good move since it’s still going downhill from there.

Now around 152-154 I’m looking to get back in, and maybe even go further while this opportunity is still here.

I already bought in at 153.9 today for $2000.

I will buy another $3000 if it drops to 152 or below. I will also buy that $3000 if it goes up to 156+ (meaning it got less likely it’ll drop back to 151-152).

Also if things don’t move, I will buy that $3000 at Jul 29 right before the BOJ meeting.

Then I’ll buy another $5000 if it drops to 150 or below. I will also buy that $5000 if it goes back up to 158+.

(update: I’m buying the whole $10k before the BOJ meeting. Then another $10k if somehow things turn south later and hit 14x. 90% sure USDJPY will go up after the meeting with no raise hike)

Adding $10k in my $62k position is kind of not that much but honestly it’s been a scary ride these 2 weeks, so I am holding my horses as far as increasing risk exposure until maybe I get more mentally prepared.

(2nd update Aug2nd: turned out I’m too chicken to add more. With some US recession looming smell and huge drops in the markets, the chance of hitting 145 or 140 has increased. I’m going to keep the position at max -25% moving forward)

Anyway this is a good start to this whole process of coming up with thesis, making plan of attack, and reviewing afterward.

Aug 2nd update

So the biggest surprise, BOJ did raise rate.

As expected, the 151-152 price already baked in the rate hike, so it actually didn’t move that much after the announcement. (and it would’ve moved up quite a bit if the result was no hike), and I would’ve lost not that much buying the dip around 154.

Another unexpected turn of event is, BOJ turning the stance and saying that the exchange rate is a very important piece as they consider rate policy.

A complete 180 degree turn from what they said in March – the comment that drove it to 160+.

If they would’ve been more consistent I would’ve avoided some losses here.

I guess it’s understandable – the BOJ is getting pressured by the citizens and politics to hike and control the exchange rate.

In any case, huge losses from the previous carry-trades as well as the dip-buying. All in all around total 4k realized and unrealized loss from the dip-buying, betting they won’t raise rate.

another HKD15k unrealized loss from the existing positions.

Looking back at the decisions

In retrospect, I don’t regret the dip-buying decisions. I could’ve made 4k or more instead of lose 4k if it turned out I was correct.

However, one place I do regret is the existing position before this fiasco.

I had originally plan to hold around -20% of portfolio in yen shorts, and as the USDJPY move up and up into 160+ range, I started seeing the 170 and 180 and wanted to increase my position – especially once it made a breakthrough before the intervention.

The problem is I was already stretched pretty thin and added to the short position to the brim, not quite playing out the 150 or 140 scenarios in my head enough.

So in hindsight what I should’ve done is using the DCA method on the USDJPY as well – which unfortunately was something I learned later.

Better late than never though for sure.

So if my target is around -20% or -25%, I should’ve probably went in -10% first around 155. maybe -5% more at 160.

Then wait until it goes 165 or down to 150 until I move again.

Also set some upper and lower limit so as the USDJPY position gets more valuable, trim down so that it goes back to -20%. On the other hand as it gets less valuable, buy at low prices to bump it back to -20%.

Also setting up the scenario like this ahead of time would have been good, might do that for US and JP stock as well moving forward