Lesson 5
Connection 7-8: Carry & Credit Creation
If USD/JPY (USDJPY) is crashing, reduce risk immediately regardless of 'fundamentals.' If SLOOS shows >40% tightening, prepare for recession even if current data looks fine.
📊 Indicators mentioned in this lesson (click for details):
Connection 7: USD/JPY (USDJPY) → Carry/Correlation
The yen carry trade creates hidden liquidity. USD/JPY (USDJPY) movements signal risk appetite and potential forced selling.
Mechanics:
- USD/JPY (USDJPY) rising slowly: Carry expanding, hidden liquidity, supportive
- USD/JPY (USDJPY) falling slowly: Some carry unwind, mild headwind
- USD/JPY (USDJPY) falling >3% in a week: CARRY UNWIND ALARM
Why it causes correlation: Carry trades fund diverse assets (stocks, bonds, crypto). When they unwind, EVERYTHING gets sold simultaneously. This is why '1 correlation' happens — all assets fall together.
Monitoring:
- Watch USD/JPY (USDJPY) velocity, not just level
- BoJ policy signals matter (rate hike hints = yen strength risk)
- August 2024 crash was pure carry unwind
Connection 8: SLOOS → Credit Creation
The Senior Loan Officer (SLOOS) Opinion Survey (SLOOS) measures whether banks are actually lending.
Thresholds:
- Net easing (negative %): Credit expanding, bullish
- Net tightening 0-20%: Mild caution
- Net tightening 20-40%: Notable stress
- Net tightening >40%: Recession warning (preceded every recession since 1990)
The Lead:
SLOOS tightening leads recession by 6-12 months. It's one of the most reliable leading indicators because credit creates spending.
Check your understanding
Lesson Quiz
Quiz Check
USD/JPY (USDJPY) is falling rapidly (5% in two weeks) while no US economic news has changed. What should you do?