Yen Carry Trade Under Pressure as Japanese Currency Surges to Seven-Month High

The Japanese yen has been steadily rising since the start of the month, reaching a seven-month high and surpassing levels reached after a rare joint US-Japan market intervention in July.

The currency is currently trading at around 153.5 against the US dollar, up over 3% from its previous lows.

Matteo Giovannini, senior finance manager at Industrial and Commercial Bank of China, attributes the strengthening to a mix of factors, including a narrowing US-Japan yield gap, scaling back of short-yen positions, and growing expectations of a Bank of Japan (BOJ) rate hike.

Giovannini notes that 'a stronger yen and greater expectations of BOJ tightening make the carry trade less attractive because the cost of funding positions in yen is rising while the risk of exchange-rate losses increases.'