Yen Surge Throws Carry Trade into Chaos Ahead of BOJ Meeting
The Japanese yen has experienced a sudden and significant surge in value ahead of an expected interest rate hike from the Bank of Japan next week, upsetting the long-established carry trade.
The yen's rally has reached its strongest level since February at 152.89 per dollar on Tuesday, a quick reversal of fortune for the currency that was loitering at around 160 less than a week earlier.
Cross-border yen borrowing, which is a proxy for the carry trade, ballooned to a record 360 trillion yen ($2.35 trillion) as of March, according to Jefferies analysis of data from the Bank for International Settlements.
The spike in the yen's value has also led to an unwinding of the popular carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields.