The Bank of Japan's move to raise interest rates to their highest in 15 years has jolted the yen to its strongest against the dollar since March and left it ...
LONDON/SINGAPORE - The Bank of Japan's move to raise interest rates to their highest in 15 years has jolted the yen to its strongest against the dollar since March and left it poised for further gains, as investors reassess carry trades , once the year's favoured play.
That July level was the Japanese currency's weakest since 1986. The yen came under heavy pressure as benign market conditions and a wide gap between borrowing costs in Japan and those elsewhere meant it was a popular choice as a funding currency for carry trades. But with the BOJ raising rates at a time when cuts by central banks around the world finally gather pace, investors are changing tack.
"This shift could diminish the attractiveness of short yen positions, as the narrowing rate differential between the BOJ and other central banks, particularly the Fed which is expected to cut in September and December, makes the yen less appealing for carry trades.
Those factors have already seen carry trades get unwound, with knock on effects on currencies from Mexico to Switzerland.
Carry Trades Currency Swaps Interest Rates
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