Trump's potential win in the U. S. presidential election stirred whispers across trading desks back in 2024 about reviving the once-thriving 'BoJ trade.' This setup involved going long on Japanese equities while shorting both the yen and Japanese government bonds (JGBs). It thrived under Japan's dovish monetary regime but has since faced significant headwinds due to changing macroeconomic conditions.
'BoJ Trade' Breakdown: What You Need to Know
The 'BoJ trade' came into vogue when Japan was deep in negative real interest rates, with a yen that seemed hell-bent on depreciation. Investors flocked to buy stocks and banks, convinced inflation expectations were rising faster than a Tokyo summer sun. Shorting JGBs? Just part of the play—investors wanted to ride that wave of perceived economic momentum.
