Yen's Sudden Surge Upends Lucrative Carry Trade
The Japanese yen has seen a sudden surge ahead of an expected interest rate hike from the Bank of Japan next week, upending the long-established and lucrative carry trade.
The yen hit 40-year lows in July, triggering a joint U.S.-Japan intervention. Now, it's rising again, boosted by early hints of capital repatriation and expectations of a faster pace of monetary tightening by the BOJ along with U.S. pressure.
'The carry trade is vulnerable because this unwind is happening before the BOJ has even delivered its expected hike,' said Charu Chanana, chief investment strategist at Saxo.
Cross-border yen borrowing, 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.