Yen attract carry traders again

Japanese currency are becoming more interesting for carry traders, while forex experts estimate a set-back over the next months.

Yen as a carry trade

During much of the beginning of the century, yen was the main carry trade currency among international forex investors and traders. This mean it was sold by investors because its yield was so negligible, and the proceeds were invested in higher yielding currencies, such as Australian dollar (AUD) or Sterling (£). However, in the middle of the financial crisis, the yen was displaced by the US dollar, in the light of the slashed American interest rates.

Shift in lending rates

It’s now cheaper to borrow money in Yen then in US Dollars, when looking at the 3-month libor rate. This means selling the yen is a cheaper way to fund carry trades. Even though the rate difference is very small at the moment, it has an important psychological impact. Currency strategist Maurice Pomery at Strategic Alpha believe the Yen could weaken dramatically due to the shift of carry trade currency. At the same time, it looks like the Japanese economy will benefit from a weaker currency, boosting export.

So what do you think? Time to sell the Yen again?

Leave a Reply