CURRENT SPREAD
512.5 bps
Fed 5.375% vs BoJ 0.250%
12M PROJECTED SPREAD
437.5 bps
Spread Compression: -75 bps
CARRY YIELD CUSHION
3.85%
Net Annual FX Hedging Breakeven
REPATRIATION AT RISK
$42.5 B
Status: Moderate
12-Month Rate Trajectory & Policy Differential (D3)
● Fed Path
● BoJ Path
■ Net Spread
Carry Trade Sensitivity Breakdown
| Factor | Model Input | Transmission Impact |
|---|---|---|
| US Consumer Strength | 82 / 100 | Delays Fed cuts; keeps funding spread wide |
| BoJ Normalization | +50 bps | Compresses yield gap; increases JPY funding cost |
| Carry Cushion (Net) | 3.85% | Yield buffer against spot USD/JPY appreciation |
| FX Volatility Factor | 18.4 pts | Sharpe penalty reduces levered position sizing |
Reuters Morning Bid Context
Resilient US retail spending and consumer demand sustain core PCE at 3.10%, enabling the Federal Reserve to hold policy at 5.375%. Meanwhile, the Bank of Japan progresses with a 50 bps tightening path. The net spread narrows from 512.5 bps to 437.5 bps, keeping USD/JPY carry yield cushion at 3.85% with an estimated $42.5B capital repatriation risk (Moderate pressure).