Japan's Cheap Funding Era Comes to an End

Japan's status as the world's preferred source of cheap funding may be coming to an end, according to financial experts. The Japanese Yen (JPY) has been one of the cheapest currencies for borrowing money, allowing investors to lend at low interest rates and invest in higher-yielding assets elsewhere.

The 'Yen carry trade' strategy, which involves borrowing in yen and investing in other assets with higher returns, has become a global phenomenon. Investors have been using cheap Japanese funding to finance purchases of US Treasuries, corporate debt, emerging-market bonds, equities, and higher-yielding currencies.

However, the Bank of Japan (BoJ) is expected to raise interest rates again this week, which could make borrowing in yen more expensive. This would narrow the interest-rate gap between Japan and other major economies, potentially ending the era of virtually free Japanese funding.