A Yen for Carry Trades That Never Left the Markets is Vexing Everyone
The persistent allure of the Japanese yen in carry trades is continuing to cause turmoil in global financial markets, leaving investors, traders, and central banks alike grappling with its far-reaching consequences. For years, the yen has been a favored currency in carry trades — a strategy where investors borrow in low-interest-rate currencies to invest in higher-yielding assets elsewhere. Japan’s long-standing low interest rates have made its currency an ideal choice for such transactions. However, even as global monetary policies have evolved, the yen’s role in carry trades has remained a vexing issue. The yen’s appeal is partly due to the Bank of Japan’s commitment to ultra-loose monetary policies, which contrasts sharply with tightening cycles in other regions. The continuation of these policies, despite rising inflation and economic pressures, means that the yen remains a cheap funding currency for speculative investors. This persistent yen carry trade behavior is creating volati...