Yen Rally Threatens Carry Trade Ahead of BOJ Rate Decision

The Japanese yen's sharp rally ahead of an expected Bank of Japan interest rate hike next week is disrupting the long-established carry trade, prompting investors to reassess the outlook for the volatile currency.

Cross-border yen borrowing, viewed as a proxy for the carry trade, reached a record 360 trillion yen ($2.35 trillion) as of March, according to a Jefferies analysis of Bank for International Settlements data cited by Reuters.

The scale of the yen's rally is significant, with the currency strengthening to 152.89 per dollar on Tuesday, its strongest level since February, and nearly 5% against major carry-trade currencies such as the Mexican peso and Turkish lira in September.