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The Yen Carry Trade

Owen F. Humpage

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Abstract

The yen carry trade carries on. International investors borrow yen at extremely low Japanese interest rates and invest (carry) the funds in higher yielding, foreign-currency assets for a profit. The Australian dollar, the New Zealand dollar, and the U.K. pound are frequent target currencies for the yen carry trade. Carry-trade investors typically remain exposed to foreign-exchange risk. Consequently, many observers fear that if the Bank of Japan raises interest rates, the carry trade might unwind rapidly with repercussions in global currency markets.

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What this paper is about

The yen carry trade carries on. International investors borrow yen at extremely low Japanese interest rates and invest (carry) the funds in higher yielding, foreign-currency assets for a profit. The Australian dollar, the New Zealand dollar, and the U.K. pound are frequent target currencies for the yen carry trade. Carry-trade investors typically remain exposed to foreign-exchange risk. Consequently, many observers fear that if the Bank of Japan raises interest rates, the carry trade might unwind rapidly with repercussions in global currency markets.

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Available abstract

The yen carry trade carries on. International investors borrow yen at extremely low Japanese interest rates and invest (carry) the funds in higher yielding, foreign-currency assets for a profit. The Australian dollar, the New Zealand dollar, and the U.K. pound are frequent target currencies for the yen carry trade. Carry-trade investors typically remain exposed to foreign-exchange risk. Consequently, many observers fear that if the Bank of Japan raises interest rates, the carry trade might unwind rapidly with repercussions in global currency markets.

Key concepts: Carry (investment), Pound (networking), Liberian dollar, Currency, Economics, Monetary economics, Interest rate, International economics

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