If yen breaks 160, BOJ must raise rates or burn reserves; carry trade unwinding threatens equities.

And when it does, the BOJ has really two options. They either raise rates in September or they burn more of their reserves, defending a line that the market keeps erasing. And neither option is painless. Higher Japanese rates makes the carry trade more expensive to run. So then it begins to unwind, meaning the US stocks get sold off, the bonds get sold off to buy back the yen. More reserve spending just delays the same problem. The cheap yen has been one of the great funding sources for risk this year and it's running out of road. So effectively what he's saying is if the yen trades back up here and makes a new high, there's an argument to be made that to unwind the yen carry trade that involves selling US bonds, US stocks back into US dollars, then buying back yen with those dollars to pay back those low interest rate loans. Because when you're borrowing at zero or near zero interest, if those loans become more expensive, the delta that you're getting by borrowing at near zero, putting it into a market where you're getting actual return and then you're making that delta, right? If these rates go up, you then have to unwind this side of the trade to pay back those loans that are now expensive. So, this is going to be something interesting to watch. We had that peak above. It's back below. This