Yen Intervention Boosts Carry Trade with $5 Trillion in Foreign Purchases

Japan's recent efforts to prop up the yen have had an unexpected consequence: boosting the carry trade. Market watchers say investors took advantage of the yen's sharp rally following last month's joint U.S.-Japan currency intervention to snap up overseas assets at more favorable exchange rates.

The data from Japan's Ministry of Finance shows that Japanese investors net bought over 5 trillion yen of foreign equities and long-term bonds in the two weeks ended August 15. This is a stark contrast to the prior two weeks, where they net sold over 300 billion yen worth of these assets.

The purchases are seen as a result of the carry trade, where investors borrow money at low interest rates in Japan and invest it in higher-yielding assets abroad. The yen's rally has made this strategy more attractive, allowing investors to take on more debt while still benefiting from higher returns.