Yen Surge Upsets Carry Trade Faithful Ahead of BOJ Rate Hike

The Japanese yen has been surging in value ahead of an expected interest rate hike from the Bank of Japan next week, upsetting the carry trade faithful.

The sudden rally in the yen has triggered a joint U.S.-Japan intervention, and analysts warn that further strength could lead to a disorderly unwinding of the popular carry trade.

Cross-border yen borrowing, a proxy for the carry trade, ballooned to a record 360 trillion yen (US$2.35-trillion) as of March, making it the largest carry-trade build-up of the past three decades.

The yen firmed to its strongest level since February at 152.89 per dollar on Tuesday, in a quick reversal of fortune for the currency that was loitering at around 160 less than a week earlier.