Yen Carry Trade Under Pressure as Currency Strengthens

The yen carry trade is under pressure as Japan's currency strengthens to a seven-month high. This move has investors reassessing their strategy, which involves borrowing Japanese currency at low interest rates and investing in higher-yielding assets elsewhere.

The Bank of Japan could accelerate interest-rate hikes, potentially as soon as its policy meeting next week, further increasing the pressure on the yen carry trade.

Annualized returns on dollar-yen carry trades are currently around 2.5% to 3.5%, down from roughly 5% to 6% in 2024 when the interest-rate differential was wider.