Record 2.35 trillion Yen Carry Trade Facing Unwinding Amidst BOJ Hike Expectations
A record cross-border yen borrowing of $2.35 trillion is creating volatility as the Bank of Japan prepares for an interest rate hike.
The Japanese yen is rallying sharply in anticipation of a Bank of Japan interest rate increase scheduled for next week. This surge threatens the lucrative carry trade strategy, which relies on borrowing yen at low rates to invest in higher-yielding assets. Cross-border yen borrowing reached a record $2.35 trillion by March according to Jefferies analysis of Bank for International Settlements data. The yen fell to its lowest level in 40 years during July before recent US-Japan interventions supported the currency. Early signs suggest capital is beginning to flow back into Japan. Investors are now unwinding positions ahead of monetary policy meetings in both Tokyo and Washington. A rapid decrease in these positions could trigger broader volatility across global financial markets similar to the turmoil seen in August 2024.
