1997 x 2008: Year of the Hammered Monkeys

Dollar/Yen has declined -7.5% in two weeks, the fastest decline since the Asian Financial crisis. Anyone who borrowed in the world's largest carry currency is getting obliterated. The cost of defending China's Yuan is skyrocketing, as hot money heads back to Japan...

RISK OFF Visualized: Unwind is accelerating...

Having thoroughly monkey hammered risk markets in August, December and early January, China's currency has been stable for an entire month. I think we all see where I'm going with this...

As indicated in a previous post, directionally, the currency is correlated to global "risk", but when the PBOC intervenes to stabilize, there's a temporary disconnect in correlation. Which makes it hard to ascertain the next leg down, or does it...

Looking at the Japanese Yen (below) in black, I noticed that China's currency reserves drawdown correlates to fluctuations in Dollar/Yen. Meaning that when the Dollar/yen is strong (RISK ON), drawdown is mitigated and when it's weak, drawdown accelerates. Stocks would have predicted a larger drawdown in January, however, the Yen would have predicted a lighter drawdown than December, which is what occurred...

Now here is Yen versus Yuan on a 3 month basis, performance scale. Yen is down -7.5% just since the beginning of February, the Yuan has been flat for a month. 

February's Yen decline is 3x larger than December, and January was an up month for that currency. The carry trade unwind is accelerating, and therefore the costs of defending the Yuan are accelerating commensurately...