# #267 Bayesian Updating #Omnivore ## Colophon title:: #267 Bayesian Updating type:: [[clipped-note]] tags:: [[&omnivore]] Newsletter 00._Must url:: https://publicpolicy.substack.com/p/267-bayesian-updating archive:: https://omnivore.app/me/267-bayesian-updating-1913f390b00 date:: [[2024-08-11]] ## Highlights tags:: > <mark class="omni omni-yellow">for years global investors have been taking advantage of the zero interest rate regime in Japan to borrow short in yen to buy all kinds of better-yielding assets around the world. This has been going on for years, and you see this in India as well, when you notice Japanese banks and conglomerates pay premium prices for stakes in Indian assets. This is what is called the ‘yen carry trade’.</mark> [⤴️](https://omnivore.app/me/267-bayesian-updating-1913f390b00#326921fa-1633-4ed5-92fc-d10e3a3bba52) ^326921fa “Yen carry trade” tags:: > <mark class="omni omni-yellow">It works so long as interest rates in Japan stay low relative to the rates in the markets where you make the yen investments (largely the US). This has gone bonkers in the last couple of years after the Fed started raising rates and reducing the stimulus after the pandemic.</mark> [⤴️](https://omnivore.app/me/267-bayesian-updating-1913f390b00#1de4924b-916c-4636-8d25-24d2d2eca249) ^1de4924b tags:: > <mark class="omni omni-yellow">The arbitrage opportunity only kept going one way. Up. Cheap money for investors in the past decade of quantitative easing has been like water to fish. They swim in it but they seem to have forgotten it exists. Only when the liquidity starts draining away, does the truth hit home. With Japan tightening and raising rates and the US planning for rate cuts, the logic of the ‘yen carry trade’ inverts on its head.</mark> [⤴️](https://omnivore.app/me/267-bayesian-updating-1913f390b00#8d474879-2772-4bc9-9c97-f8b24463d9bf) ^8d474879 tags:: > <mark class="omni omni-yellow">given no one is sure of the size of the yen carry trade, everyone panicked last week when it happened. So, there was a massive sell-off of tech stocks, the yen rose against the US dollar, and the yields on bonds went to a one-year low. Is this unwinding all done? The general view is about half of the $500 bn of outstanding cumulative carry trade has been unwound. But who knows?</mark> [⤴️](https://omnivore.app/me/267-bayesian-updating-1913f390b00#eaa55e8a-575d-4acc-a543-a45c0dc06152) ^eaa55e8a [Read on Omnivore](https://omnivore.app/me/267-bayesian-updating-1913f390b00) [Read Original](https://publicpolicy.substack.com/p/267-bayesian-updating)