Understanding Yen Carry Trade and Its Impact

Abstract

The Yen Carry Trade is a popular financial strategy in which investors borrow money in JPY currency where interest rates are typically very low, and invest in higher-yielding assets in other countries. The idea is to profit from the difference between the low borrowing costs in JPY (usually in yen) and the higher returns from investments abroad. This strategy is particularly attractive when the Bank of Japan (BoJ) maintains a very low or even negative interest rate environment, as has been the case for much of the past few decades. By borrowing in yen at a near-zero rate and investing in assets that offer higher yields, such as U.S. Treasury bonds, stocks, or emerging market assets, investors can potentially generate significant profits.