US-Japan Intervention Sends Yen Surging Amid Shift in Carry Trade Dynamics
The recent joint currency intervention by the US and Japan has significantly impacted the global foreign exchange market, prompting major financial institutions to reassess their yen forecasts.
Bank of America (BofA) lowered its year-end forecast for the yen against the dollar to 149 from 152, while Nomura Securities of Japan projected a rate as low as 147.5.
The US-Japan intervention has also altered the dynamics of the 'yen carry trade', which involves borrowing yen cheaply and shorting it to invest in higher-yielding assets.
With the US backing Japan, anxiety has grown that the two governments could intervene at any time during the carry trade, leading to a sharp deterioration in the risk-adjusted expected revenue from long dollar/yen transactions.