Yen Soars as Carry Trade Unwind Continues Amid Bank of Japan Hike Expectations

The Japanese yen is on a tear, outperforming almost every other currency in the market. As the carry trade continues to unwind, traders are aggressively unwinding their yen shorts, with some expecting a 25-basis-point Bank of Japan hike next week.

The British pound is finding itself falling against the Japanese yen again during trading on Wednesday as this carry trade unwind continues. The ¥207 level seems to be a major support level, having held multiple times, and therefore it's not surprising to see some stability in this area starting to show itself.

While sterling is slightly stronger against many other currencies, the catalyst for the yen's rally is the Bank of Japan. With U.K. yields extremely high, at around 5.2%, the interest-rate differential may shrink just a touch. However, the directional change in Japanese monetary policy matters more right now than the absolute spread.