The Yen Carry Trade: Will it hit the headlines & your portfolio once again before US elections 2024 ?

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Synopsis

While a number of investors heard the term “ Yen carry trade” for the first time in early August, the fact is that literally every sharp hit to the equity market or a real economic crisis which different markets have witnessed since 1990, Yen carry trade had played a role. Right from the Asian crisis of 1997-98, dot com bubble of 2000, 2015 Chinese stock market crash and even to brexit. You name it and at the back of it you will find a Yen carry trade. It is not that Yen is the villain, there is a simple economic logic to it. For more than 40 years, The Bank of Japan has been keeping its interest rate low, it is and probably in all conditions a kind of reservoir, where literally anyone could go and raise money at zero percent interest rate and use that to invest across the globe, make some returns and give the money back to Japan. But there are times, when things turn volatile and make the markets behave the way they did in early August. It was not the first time that it happened, not the last time, it will reoccur.

There are some macro numbers for which there can only be estimates, because there is no regulator or for that matter any agency in the world which collates those numbers. According to some estimates, close to US $ 4 trillion is the amount of money which is currently involved in Yen carry trade, a trade which has become extremely popular in last few decades due to the fact that Yen has been depreciating against US dollar in a secular way. The

ETMarkets.com

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