LONDON/SINGAPORE : The Japanese yen is on a bumpy path towards strengthening after Friday's central bank policy change, threatening to upend the carry trade, one of this year's most popular strategies, as the currency inevitably becomes more expensive. The BOJ kept its short-term interest rate target b
LONDON/SINGAPORE : The Japanese yen is on a bumpy path towards strengthening after Friday's central bank policy change, threatening to upend the carry trade, one of this year's most popular strategies, as the currency inevitably becomes more expensive.
But two things are already clear: trading in the yen will be choppy, and have a knock-on impact on markets beyond Japan. "All these markets are linked together in terms of global liquidity flows. People borrow in yen to buy dollars, dollars sit around looking for something to do, people say we might buy Treasuries or Apple," Simon Edelsten, global equities fund manager at Artemis, said.
The currency has been under heavy pressure in the past 12 months, as other central banks raised rates while the BOJ kept borrowing costs on a tight leash. But the broad direction of travel for the yen is now thought to be towards strength. Mitra said carry trades would"probably come under pressure if the yen appreciates from here by 2-4 per cent. If your carry expectation was 5-6 per cent return versus yen then clearly that starts to erode".
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