Yen Carry Trade on Shaky Ground Amid BoJ Rate Hike Expectations
The yen carry trade has been a staple of global markets for years, but its future is uncertain due to rising expectations of accelerated rate hikes by the Bank of Japan.
The strategy involves borrowing the yen at low interest rates and investing in higher-yielding assets such as the US dollar, Mexican peso, New Zealand dollar, and other emerging market currencies.
According to Jefferies analysis, cross-border yen borrowing jumped to a record 360tn yen ($2.34tn) as of March, marking the largest carry-trade build-up of the past three decades.
The annualised returns on dollar-yen carry trades typically range from 2.5% to 3.5%, but investors are switching to the Swiss franc as a funding vehicle following yen-buying intervention by Tokyo and Washington at the end of July.