The Yen Carry Trade Unwind Threatens Global Markets

Beware of the Unwinding Japanese Carry Trade

On Wall Street, it is said of the carry trade that first they carry you in and, then they carry you out. By this, it is meant that a lot of money can be made by borrowing in a depreciating currency that has low interest rates and lending in an appreciating currency that has high interest rates. The catch however, was that you could lose your shirt if the currency in which you borrowed began to yield higher interest rates and started to appreciat…

The Yen Carry Trade Unwind Threatens Global Markets

The Shifting Dynamics of the Yen Carry Trade The central thesis is that the decades-long assumption of near-zero Japanese interest rates and a weak Japanese yen (JPY)—the two pillars of the yen carry trade—are now collapsing. 1. The Historical Carry Trade Setup Borrowing: Traders borrowed vast sums in Japanese yen at a near-zero interest rate. Investing: They converted the borrowed […]