Thread by @HyunSongShin

We have received many queries on what the BIS banking statistics say about the scale of the yen carry trade

Here is a short thread on the topic

A good place to start is the latest BIS statistical release from July 31

bis.org/statistics/rpp…

Graph 6, panel D shows how yen credit to borrowers outside Japan accelerated in 2022 as the dollar strengthened against the yen

The latest reading for yen loans as foreign currency stood at just over 40 trillion yen as of the end of March this year

Here is the link to the BIS global liquidity page which has the construction for the chart above

data.bis.org/topics/GLI/BIS…

40 trillion yen for loans and deposits, and excludes yen securities holdings - hence the somewhat smaller total than numbers that have done the rounds in recent press stories

Two points are worth bearing in mind in connection with carry trades.

First, not all of the 40 trillion is accounted for by carry trades. So, this is an upper bound for carry trades conducted on-balance sheet

Second, and more importantly, the *on-balance sheet* yen lending is not the only way that a carry trade could be constructed

This BIS piece from 2007 explains the importance of keeping track of FX swaps in the construction of carry trades

bis.org/publ/qtrpdf/r_…

In an FX swap, a lender provides dollars in return for yen, with a promise to repay the yen at an agreed exchange rate when the swap matures

The dollar provider who receives yen will normally park the yen proceeds in a safe yen asset - say in short-term JGBs

However, the yen proceeds could potentially be sold in the spot market for dollars, leaving the dollar provider with a yen obligation that is unhedged

This is a carry trade that is not captured in the BIS data

This BIS piece from last year gives some orientation to how large this type of "hidden" yen carry trade could be

bis.org/publ/qtrpdf/r_…

Here are the ballpark figures:

The size of FX swaps between dollars and yen stands at around 14 trillion dollars

Around 1 trillion dollars worth are held by foreigners in official assets

The difference is rather large and better data would allow a better accounting of the discrepancy

But it does serve to highlight why the *on-balance sheet* loan data from the BIS is likely to be capturing only a small portion of the yen carry trade

End/