PBOC Rate Cuts Killing the Yen-Yuan Carry Trade

Traders have been borrowing yen and investing in yuan to earn a 6-7% return, but the combination of rate cuts and weaker yuan has reduced expected profit down to 4% (if not lower). A steady outflow from carry traders will put additional pressure on the yuan going forward.

In his view, the reason why these institutions eager to sell yuan, mainly because they are good yuan - yen carry trade has been unable to achieve their desired income value. Yen in the past - an annual risk-free interest rate of RMB trading close to 6-7% of net income. But China enters rate cut cycle, combined with a sharp slowdown in the yuan against the yen appreciation, the entire yen - the actual income of RMB carry trade may shrink to 4 percent, as investment dollars betting on the dollar to rise.

"Now these organizations are most concerned about is whether the central bank will cut interest rates 50 basis points year over, because it means their renminbi - the yen carry trade deficit may occur," he bluntly.

21st CBH: 套利资金撤离NDF市场 人民币四连跌