Market News
Yen Rally Threatens $2.35 Trillion Carry Trade Ahead of BOJ Rate Decision - REUTERS
A powerful rally in the Japanese yen ahead of an expected Bank of Japan interest-rate hike next week is disrupting the long-established yen carry trade, forcing investors to reconsider their positions in one of the world's most heavily traded currencies.
Yen Rebounds From 40-Year Lows
The yen's recovery is being driven by expectations of a faster pace of BOJ monetary tightening, early signs of capital repatriation into Japan, U.S. pressure and investors unwinding large short-yen positions.
The currency had fallen to 40-year lows in July, prompting a joint U.S.-Japan intervention. On Tuesday, the yen strengthened to 152.89 per dollar, its strongest level since February. Less than a week earlier, it had been trading around 160 per dollar.
Carry Trade Comes Under Pressure
The rapid appreciation is threatening the popular yen carry trade. Under this strategy, investors borrow yen at relatively low interest rates and use the proceeds to purchase currencies or assets offering higher returns.
