Eggs, Gasoline and Car Insurance: Where Inflation Has Hit Americans Hardest

Economic

Data Interpretation

Summary:

As the U.S. economy began recovering from coronavirus-related shortages and shutdowns, consumer prices surged faster than they had in more than four decades. Many Americans currently see inflation as one of the nation’s top problems.

The government gauges inflation mainly by looking at the prices of a “market basket” of more than 200 goods and services and evaluating how they’ve changed over time. Several inflation measures are based on this price data, but the most widely cited is the Consumer Price Index for All Urban Consumers (CPI-U). Since the start of 2020, that measure topped out at 9.1% in June 2022 – the fastest year-over-year increase since November 1981.

Since the June 2022 peak, inflation has abated considerably. The CPI-U in June 2024 was just 3.0%, closer to the Federal Reserve’s 2% inflation target. That’s led to increased speculation that the Fed may start cutting interest rates soon.

But that doesn’t necessarily mean prices are going back down – just that they’re rising more slowly than they had been. Most things cost considerably more than they did before the COVID-19 pandemic. And the focus on the topline number can obscure the reality that inflation for individual items can be considerably above – or below – the “official” rate.

With all that in mind, we wanted to take a closer look at the CPI-U, and at the 200-plus products and services that go into that headline inflation number.

Which goods and services have gotten more – or less – expensive in recent years?

Overall, the June 2024 CPI-U was 21.8% above its level in January 2020, before the pandemic really began to hit the United States. But the costs of many products and services have risen much more than that.

A bar chart showing which prices have risen and fallen the most since 2020. Eggs, Gasoline and Car Insurance: Where Inflation Has Hit Americans Hardest_1

Eggs, Gasoline and Car Insurance: Where Inflation Has Hit Americans Hardest_1

Topping the list: margarine, which as of June is 56.8% pricier than in January 2020. Other notable increases include motor vehicle repair services (up 47.5%), motor vehicle insurance (47.3%) and veterinarian services (35.6%).

On the other hand, some goods and services cost less now than before the pandemic. For example, men’s suits, sport coats and outerwear are 6.3% cheaper than in January 2020. And dishes and flatware are down 9.9%.

Many of the items with the biggest price declines are related to computers, smartphones or other technologies. In these and other cases, the Bureau of Labor Statistics (BLS) – which puts together the CPI-U and related indices – adjusts the raw price data it collects to account for product improvements or other changes in quality over time.

In 2007, for example, the first-generation iPhone from Apple cost $499 (or $599 for the 8-gigabyte version) and came without many features that users today take for granted. Today, the 128-gigabyte base version of the iPhone 15, which is far more powerful and functional, retails for $799. Other smartphones have seen similar quality leaps over time.

The price index for smartphones has fallen 53.9% between January 2020 and June 2024. That essentially means that buying a smartphone today with the functionality that was typical in early 2020 would cost you less than half what it would have then.

What items carry the most weight in the CPI-U?

The hundreds of goods and services in the CPI-U aren’t all given equal weight when calculating the index. Instead, the BLS weights each item to reflect its share of overall consumer purchases.

The biggest item in the CPI-U, accounting for about a quarter of the entire index as of May 2024, is “owner’s equivalent rent of a primary residence” (OER). This arcane-sounding term basically estimates how much it would cost to rent out an owned home. It’s an attempt to separate a house’s value as shelter (which is treated as a service in the CPI-U) from its value as an investment (the increase in its market value over time), since investments aren’t included in the CPI-U.

OER inflation peaked at 8.1% in spring 2023 and still came in at 5.4% in June 2024. Overall, OER prices are 23.8% above their January 2020 level – just a hair below rental inflation, which is up 24.0%. Rental prices are the second-biggest factor in the CPI-U at about 7.6% of the total index.

A trend chart showing 2 different inflation paths for gasoline and bread. Eggs, Gasoline and Car Insurance: Where Inflation Has Hit Americans Hardest_2

Eggs, Gasoline and Car Insurance: Where Inflation Has Hit Americans Hardest_2

For many items, prices tend to rise or fall gradually, or at best, level off. Bread prices, for instance, seldom changed by more than a few percentage points annually from 2014 until early 2020 – though they jumped in 2022. But some items are far more volatile, with unpredictable surges and steep declines.

Gasoline, the third-biggest contributor to the CPI-U at about 3.6% of the index, is a prime example. Pump prices fluctuate based on the time of year, geopolitical events, refinery operations and a host of other factors.

Overall, the price index for all grades of gasoline was 35.9% higher in June 2024 than it was in January 2020. But that hides considerable volatility. From January 2020 to June 2022, gas prices nearly doubled (an 89.5% increase), but since then, they’ve fallen 28.3%. In fact, for all of its ups and downs, the average nationwide gas price at the end of July 2024 ($3.598 a gallon) was about what it was in early August 2014 ($3.595), according to data from the U.S. Energy Information Administration.

Which items have seen particularly sharp price spikes since 2020?

The 89.5% run-up on gasoline of all grades was almost the biggest of the pandemic period. But the price index for fuel oils (such as home heating oil) rose slightly more – 91.0% – between January 2020 and June 2022 before dropping. As of this June, fuel oil prices were 22.2% above their January 2020 levels.

The product with the sharpest (but short-lived) price spike over the past few years has been the humble egg. Egg prices peaked in January 2023 at 94.0% above the January 2020 baseline. Even though prices have fallen since, eggs still are about 40.1% more expensive than they were before the pandemic.

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Samantha Luan

Economic

Commodity

Central Bank

Stocks

Forex

Week in Review: Tumultuous Week Comes to an End

A tumultuous week for markets is set to end on a positive note. US equities have bounced back from an early-week selloff and are trading slightly higher for the week as of now. However, traders are exercising caution with a slew of high-impact economic data releases on the horizon.

Although US indices have recovered, several sub-sectors within the S&P 500 are still poised for a weekly loss. Markets Weekly Outlook – US CPI to Test Markets Following Tumultuous Week_1

Markets Weekly Outlook – US CPI to Test Markets Following Tumultuous Week_1

In the commodities sector, gold seems poised to end the week in the red but showed strong recovery towards the end of the week. Conversely, oil prices have had an impressive week, up 2.7% at the time of writing.

OPEC+ comments this week suggested that the group might postpone their planned October production increase if market conditions remain unstable. This news likely contributed to oil’s gains this week after four consecutive weeks of losses.

On the FX front, the Dollar Index is slightly down for the week at the time of writing. A robust recovery in the US Dollar during the latter part of the week wiped out gains seen by some of its G7 counterparts.

The Japanese Yen continues to be a point of interest and is on track for its first losing week in six. The unwinding of short positions seemed to peak on Monday, dragging USD/JPY to a low of 141.67. However, as sentiment improved and the unwinding phase concluded, the yen struggled to gain traction for the rest of the week.

This coupled with some dovish testimony from BoJ officials weighed further on the Japanese Yen.

The Week Ahead: Data Heavy Week to Test Markets

The upcoming week promises to be blockbuster with a host of high impact data releases. We have the US and UK inflation data prints coupled with data out of China and Japan. Last but not least we have the Reserve Bank of New Zealand (RBNZ) interest rate meeting.

Markets remain cautious heading into the new week. Data will no doubt be scrutinized as recessionary fears have not fully abated yet. Chinese data in particular will be of particular interest given the slowdown and recession fears have been sparked somewhat by a slower than expected recovery from the world’s second largest economy.

Asia Pacific Markets

In Asia, China’s major economic data releases are scheduled for the coming week. On Thursday, the People’s Bank of China will set the Medium-Term Lending Facility (MLF) rate.

Additionally, China will release 70-city housing price data and key economic activity figures. A smaller decline in property prices and stabilization in tier-one or two cities would be a positive step in restoring confidence. Retail sales are expected to recover slightly after last month’s post-pandemic low, while industrial production and FAI may also stabilize this month.

Japan will release its 2Q24 GDP on Thursday, expected to rebound to 0.5% quarter-on-quarter seasonally-adjusted (slightly below the 0.6% market consensus). However, this is unlikely to fully offset the 0.7% contraction seen in 1Q24. June manufacturing activity was weaker than anticipated due to another auto safety issue, affecting auto-related sectors. On the positive side, household spending and facility investment should see improvement.

Following the comments by BoJ policymakers it will be interesting to gauge the market reaction to Japanese data as this will be the first set of key data following the rate hike.

Europe + UK + US

Looking to the Euro Area, the US and UK and the calendar comes back to life following a quiet week.

There is a host of UK high impact data which includes the employment data, UK CPI, GDP and Retail sales. The GBP continues to hold the high ground with positive data likely to keep the GBP elevated.

The US also delivers its July CPI data in the week ahead and given the repricing of Federal Reserve rate cuts will be of particular interest. The week wraps up with US retail sales and Michigan consumer sentiment data.

Q2 Euro Area GDP preliminary numbers will also come out this week. This is a key gauge for market participants to keep an eye on as the global growth slowdown weighs on the minds of traders. Markets Weekly Outlook – US CPI to Test Markets Following Tumultuous Week_2

Markets Weekly Outlook – US CPI to Test Markets Following Tumultuous Week_2

Chart of the Week

The chart of the week I’m focusing on is the US Dollar Index (DXY), which remains a significant force in the financial markets.

After an early week selloff, the DXY has rebounded to trade nearly flat as we head into next week. The substantial downside week is promising for bulls, but the DXY still faces downside risks.

Currently, the DXY is just below key resistance at 103.17, with the next point of interest around 103.65.

A downward move from here would need to break supports at 102.95 and 102.64 before this week’s lows at 100.64 come into play.

US Dollar Index (DXY) Weekly Chart – August 9, 2024

Source:MarketPulse

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Risk Warnings and Disclaimers

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Devin

Economic

THIS month marks 10 years since the signing of the Glasgow City Region Deal. The Deal provides over £1 billion of funding to support the Glasgow economy, with claims that it would generate 29,000 jobs. Similar deals have spread throughout the UK.

Much has changed over the last decade. The Glasgow "deal" was signed just weeks out from the independence referendum. The years since have been dominated by Brexit, Covid-19 and the cost of living crisis. Hopes that these deals would be part of a renaissance of economic prosperity have been dashed.

And much has changed in policymaking circles too. Deals were meant to mark a new wave of regional economic development policy, underpinned by partnerships between UK and local policymakers (and in Scotland, with the Scottish Government). In some regions, including in Glasgow, greater co-ordination and collaboration between local authorities has been a clear benefit.

But the dealmaking process, and crucially its interaction with the broader economic policy landscape, has not been without its critics.

In many cases, it is hard to see how aspects of investment programmes have gone beyond financing infrastructure projects that would – and should – have been delivered anyway if the required funds had simply been provided to local authorities in the first place.

Most significantly, deals have highlighted just how much core local authority economic development budgets have been squeezed in recent years.

In contrast, we have seen a flurry of Westminster-led initiatives extending beyond City Deals to "innovation accelerators", "freeports" and "investment zones". All, of course, come with significant claims of transformation, whether that be ambitions to become the next Helsinki or Boston, to deliver "sustainable jobs", "growth with a purpose" or "wellbeing".

But no amount of propping up by a potpourri of increasingly complex initiatives can hide the piecemeal nature of investment in city economic development more broadly. Most importantly, missing in all this debate has been the lack of a coherent national policy framework for urban economic development.

The new UK Government promised a series of local growth plans in last month's King's Speech. As with any new administration, the next few months provide a renewed opportunity to set out a new policy agenda that, while building on the elements of City Deals that have worked, clarifies an increasingly complex landscape.

A first step would be to set out an ambition to properly fund city and regional economic development, to empower local authorities and partners to develop policy responses that best fit their needs, and to limit interference from national policymakers. If there is a national commitment to urban regeneration, then it needs core funding. Too often, in recent years, local policymakers have increasingly had to jump through hoops simply to ensure that their plans "fit" a shifting pattern of objectives.

A second step would be to clarify where tools such as deals – and broader national policy frameworks – can still add value. These should be narrowly targeted at where national policies and funds, when combined with local alignment and comparative advantages, can leverage improved national outcomes.

These priorities could include the transition to net zero in Aberdeen or the growth of second-tier cities such as Birmingham and Glasgow. But, crucially, they shouldn't seek to replace core funding in economic development.

A robust policy framework might not be as headline grabbing as the next funding round for a new investment zone, or the opening of a shiny new building, but it will have a far more lasting impact upon communities crying out for urban renewal.

There are many positives from the last 10 years of City Deals in the UK. And cities such as Glasgow are the better for the investment that has been secured. But there is significant room for improvement.

Interestingly, Australia followed the UK in rolling out City Deals. But the Canberra government has recently confirmed no new deals, with similar questions about national strategic purpose looming large.

In the UK, there is the chance for policymakers once again to take the lead and to develop a sustainable approach to urban economic development that survives the latest policy fad or bright idea. A greater focus on the economy we actually have in the UK's cities and regions, and less on the economy we fantasise about, would be a useful start.

Source: The Herald Scotland

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FxPro

Cryptocurrency

Market Picture

Risk appetite played out in the markets on last Thursday, adding over 6.4% to the crypto market’s capitalisation in the 24 hours. The capitalisation peaked at $2.18 trillion in the morning, the highest since 9 August.

In just over 24 hours, the price of bitcoin rose 14% to $62.6K, before falling back to $60K by the start of active trading in Europe. The former cryptocurrency failed to break above the intersection of the 50- and 200-day moving averages. The ability to close above this at $61.8K could encourage buyers to quickly rally to $67K. A retreat from this level would set up a scenario of a return to the area of the sustained July and August lows near $55.5K.

Ethereum is trading at $2660, having rallied to a classic 61.8% Fibonacci retracement of the down amplitude from 22 July to 5 August. A death cross has formed on the daily chart, increasing the chances of a downward move under technical pressure. On the other hand, Ethereum is still oversold locally, and financial markets are rallying, attracting bargain hunters to the crypto.

News background

According to Santiment, bitcoin whales actively accumulated coins during the crypto market crash on 5-6 August. The number of transactions reached its highest level since April. According to CryptoQuant’s calculations, the balance of miners’ wallets was increased by 404,448 BTC ($23 billion) over the past 30 days.

Institutional investors have virtually not reduced their positions in the first cryptocurrency amid the turbulence, which has contributed to the rebound in prices, JPMorgan noted.

Major liquidations from the Mt. Gox and Genesis bankruptcies are behind us, and upcoming fiat payments to FTX creditors later this year could boost demand. Major US political parties are also signalling support for favourable cryptocurrency regulation.

The New York Stock Exchange (NYSE) has filed with the SEC to list and trade spot Ethereum ETFs from Bitwise and Grayscale.

Brazil’s Securities and Exchange Commission has approved the launch of the country’s first Solana-based exchange-traded fund (ETF) (SOL). However, Brazil’s B3 stock exchange still needs to approve the new investment product for trading.

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Cohen

Economic

India is poised to narrow the gap with China in MSCI Inc's gauge for developing nations.

Analysts from firms including Smartkarma and IIFL Securities Ltd expect India's weight in the MSCI Emerging Markets Index to rise by at least one percentage point following the index provider's review this week. This would bring the country almost on a par with China, which currently accounts for 22.33% of the benchmark. India lags at 19.99%.

A higher weighting for India will position it to become the new anchor for emerging-market equities, likely driving increased flows into the country. Fund managers say that India's rising heft may make the emerging-market gauge more appealing to global investors who have been wary due to China's sway over the index.

"It can make the emerging-market index more balanced, where secular growth stories like India receive higher allocation" compared with more cyclical markets like China and South Korea, said Vivek Dhawan, a portfolio manager at Candriam Belgian NV. India Set to Close in on China as Emerging-Market Stock Anchor_1

India Set to Close in on China as Emerging-Market Stock Anchor_1

This shift has a side effect, as index followers may be forced to allocate funds to India's already-expensive stocks at a time when crowded trades are taking a hit due to the turmoil in global markets.

India — long touted as the "next China" — has emerged as a favourite among investors, driven by its robust economic growth, a growing middle class and burgeoning manufacturing sector. Meanwhile, China is dealing with long-term economic challenges and increasingly strained relations with the West.

"Many global investors who didn't look at India as a stand-alone allocation in the past would now look at it more favourably," said Hiren Dasani, a co-head of emerging-market equity and lead portfolio manager of Indian equity strategies at Goldman Sachs Asset Management.

China's standing in emerging markets has shrunk in the past few years, while India's has steadily expanded. At its peak in 2020, China accounted for 40% of the MSCI EM Index, but that weighting has dropped amid Beijing's regulatory crackdowns and efforts to deleverage its indebted property sector.

India Set to Close in on China as Emerging-Market Stock Anchor_2

As of end of July, India's weight was just 2.34 percentage points away from China's in the MSCI Asia Pacific Index, a regional benchmark, a recurring pattern across most gauges from major index providers. MSCI didn't respond to an email seeking comment outside of regular business hours.

"With a rising equity market, increase in free float for companies and new large listings in India, the gap in the weightings should continue to narrow heading into year end," said Brian Freitas, an analyst at Smartkarma.

Meanwhile, Taiwan is competing fiercely with India in the race to replace China's top spot in emerging market equity portfolios. As of the end of July, Taiwan accounted for 18.39% of MSCI's emerging-market index.

While India has benefited from the infrastructure boom brought about by Prime Minister Narendra Modi's modernisation projects, Taiwan's rise has been supported by global interest in artificial intelligence chipmakers. It's home to the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC).

In its review, MSCI is likely to add six stocks to its key India index, including Samsung Electronics Co supplier Dixon Technologies (India) Ltd and property developer Oberoi Realty Ltd, according to Abhilash Pagaria, the head of alternative and quantitative analysis at Nuvama Wealth Management Ltd. HDFC Bank Ltd, India's largest by market value, may also see a gradual increase in its weighting, he wrote.

While Chinese stocks have struggled, India's NSE Nifty 50 Index has risen 12% this year, following Modi's third consecutive term in the office. The benchmark gauge is set for a ninth straight year of annual gains.

The contrasting trajectories highlights investors' preference for India even as China's equities remain very cheap. It also underscores Beijing's inability to stem the downtrend in its markets.

"We do look at India as a bit of a diversifier against some of China's weakness," said Seema Shah, the chief global strategist of Principal Asset Management. "A lot of the potential that people have been speaking about for years and years is now looking to be fulfilled."

Source: Bloomberg

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FastBull Featured

Daily News

[Quick Facts]

1. Fed's Bowman makes hawkish remarks amid rising rate-cut expectations.

2. Israeli intelligence says Iran will attack Israel in days.

3. Nasdaq intends to weed out penny stocks.

4. Latest polls show Harris is leading Trump in key states.

[News Details]

Fed's Bowman makes hawkish remarks amid rising rate-cut expectations

Weak employment data in July suggests inflation is closer to the target level, which consolidates economists' and investors' expectations for a Fed rate cut in September. However, hawkish Fed Governor Bowman said U.S. fiscal policy, pressure from immigration on the housing market, and geopolitical risks are likely to exert upward pressure on inflation. The labor market continues to be strong, and the recent jump in the unemployment rate to 4.3% might have exaggerated the extent of the cooling of the labor market. Judging from what Bowman said, she may not be ready to support a rate cut at the next meeting in September.

Israeli intelligence says Iran will attack Israel in days

The Israeli intelligence assessed that Iran forces could be planning an attack on Israel within days, even before the August 15 Gaza hostage deal talks. Earlier, Qatar, Egypt, and the United States issued a joint statement, saying that the relevant mediators have reached a framework agreement on a ceasefire and exchange of hostages in the Gaza Strip, and only specific details remain to be finalized. The statement also called on Israel and Hamas to restart negotiations on August 15 in Cairo, Egypt, or Doha, Qatar, to determine the details.

Nasdaq intends to weed out penny stocks

The Nasdaq Stock Exchange is taking steps to purge dubious companies whose shares trade below $1 each, according to the latest filing posted on its website, following criticism that the exchange has become home to hundreds of risky penny stocks.

Nasdaq has proposed two rule changes that would tighten regulations on stocks trading below $1, potentially speeding up the delisting process for non-compliant companies. Under one of the proposed changes, companies that reach the end of their second 180-day grace period wouldn't be able to postpone delisting by seeking an appeal. The second rule change would expedite the delisting process for companies that have recently undergone a reverse stock split.

Latest polls show Harris is leading Trump in key states

A poll released by The New York Times on Saturday reveals that Vice President Harris leading Trump with 50% support to his 46% in three key swing states - Wisconsin, Pennsylvania, and Michigan. Nationally, Harris also leads with 44% to Trump's 42%. The fluctuating support indicates a tight race, with the outcome of the election still highly uncertain.

[Today's Focus]

UTC+8 23:00 U.S. NY Fed 1-Year Ahead Inflation Expectations (Jul)

TBD China M2 Money Supply YoY (Jul)

TBD OPEC's Monthly Oil Market Report

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Thomas

Bond

By now, last Monday's global market meltdown looks more like a brief tremor, a fleeting panic unleashed by a small policy shift from the Bank of Japan (BOJ) and resurgent fears of a US recession.

But the way it unfolded so rapidly — and just as quickly faded out — is exposing how vulnerable markets are to a strategy that hedge funds exploited to bankroll hundreds of billions of dollars of bets in virtually every corner of the world.

The yen carry trade, as it's known, was a sure-fire recipe for easy profits: Just borrow in Japan, the world's last haven of rock-bottom interest rates, then plough it into Mexican bonds yielding over 10%, Nvidia's soaring shares or even bitcoin. When the yen kept falling, the loans became even cheaper to repay, and the pay-offs turned that much bigger.

Then, seemingly all at once, investors bailed out of the trade, in turn helping to fuel a furious rebound in the yen and a swift exodus from equities and other currencies as traders dumped assets to meet margin calls. It roiled Japan's stock market, too, setting off the fiercest one-day sell-off since 1987 on concern the surge in the currency would hammer exporters.

“The yen carry trade remains the epicentre of everything in markets right now,” said David Lutz, the head of exchange-traded funds at JonesTrading.

The pressure had been building up for weeks as markets in carry-trade hot spots sputtered, the Nasdaq 100 Index slid off record highs and worries mounted that the Federal Reserve had kept monetary policy too tight for too long.

Then came the spark: an interest rate hike in Japan. The BOJ's benchmark is now still a mere 0.25%, the lowest in the industrial world, but the increase at the end of last month was large enough to force investors to rethink their long-held belief that Japanese borrowing costs would always remain pinned near zero.

Even though markets have steadied, the episode is raising alarms about how much leverage had built up around Japan as its central bank kept pumping out cash despite the post-pandemic inflation surge. That's left anxious traders trying to gauge whether the bulk of the unwinding is over — or whether it will continue rippling through markets in the weeks ahead.

Coming up with an answer is tricky because there are no official estimates for how much money is tied up in carry trades. According to GlobalData TS Lombard, there was some US$1.1 trillion (RM4.87 trillion) piled into the strategy, assuming all overseas borrowing in Japan since the end of 2022 was used to finance it and domestic investors used leverage for their foreign purchases.

After last week's dramatic unwinding, strategists at JPMorgan Chase & Co reckoned that three-quarters of global currency carry trades have now been closed out, while those at Citigroup Inc said the current level of positioning has taken markets out of the “danger zone”.

But others like BNY believe the unwind has further room to run, potentially driving the yen towards 100 to the US dollar — a fall of over 30% from where the currency pair ended last week.

“Further carry-trade unwinding seems likely but the most significant and destructive part of this bubble-burst is now behind us,” Steven Barrow, the head of Group of 10 strategy at Standard Bank in London, said in a note to clients last week.

The bubble, as Barrow called it, has decades-old roots. In the 1990s, with Japan's economy shadowed by a real estate crash, policymakers there slashed interest rates to zero. The trade has even been blamed by International Monetary Fund economists for playing a part in the 2008 financial crisis.

By 2016, the BOJ had nevertheless pushed rates into negative territory.

The incentive for speculators to borrow in Japan increased once other central banks started racing to contain the steep spike in inflation after the world reopened from the pandemic. As rates were lifted all around the world, the BOJ kept its benchmark beneath zero — widening the profits that could be made on carry trades.

The result was a wave of speculative cash that flowed out of Japan, putting downward pressure on the yen as traders sold the currency to buy those of the countries where they were investing the proceeds.

The impact was particularly stark in Latin America, which offered rates well above those in the US and Europe. In 2022 and 2023, currencies like the Brazilian real and the Mexican peso rose sharply, becoming some of the world's best performers.

By one measure, borrowing in the yen and investing in Mexico, for example, produced returns of 40% last year alone. The strategy continued to rack up gains, with yen-funded trades in a basket of eight emerging-market currencies returning just over 17% this year to early July.

“To go long the peso was such a no-brainer just a few months ago — but those days are definitely behind us,” said Alejandro Cuadrado, the head of global foreign exchange and Latin America strategy at Banco Bilbao Vizcaya Argentaria SA in New York.

When the yen started rebounding sharply from its weakest levels in decades, that created a feedback loop as traders unwound carry trades to lock in their gains — pushing the yen up further as investors purchased it to close out their loans. It accelerated after the BOJ hiked rates on July 31 for a second time this year and surprisingly weak US job figures fanned fears that the Fed had waited too long to reverse course.

After the unwind hit Japan's stock market on Aug 5, driving the Nikkei down 12%, BOJ deputy governor Shinichi Uchida stepped in to assure investors the central bank won't be raising rates as long as market instability persists. The markets steadied, with signs that hedge funds pulled back some bets that the yen would continue to gain.

The recent turn has, at least temporarily, likely tamped down the carry trade, with traders anticipating more volatility in foreign exchange markets this year.

“No trade lasts forever — and, the facts have changed,” said Jack McIntyre, a senior portfolio manager at Brandywine Global Investment Management. “The BOJ tightened and something broke — in this case the carry trade.”