U.S.-Japan yen intervention, Bank of Japan: carry trade
Recent Japanese currency intervention aimed at strengthening the yen has inadvertently encouraged investors to increase carry trade positions. Market experts note that as long as Japanese interest rates remain low compared to overseas returns, the carry trade will persist.
Why it matters
This highlights the limitations of central bank interventions in global currency markets and the persistent nature of yield-seeking investment strategies.
Japan's historic effort to prop up the yen may have had an unintended consequence: giving some investors a better opportunity to double down on carry trade.
Japanese investors net bought more than 5 trillion yen of foreign equities and long-term bonds over the two weeks ended Aug. 15, compared with net selling of over 300 billion yen in the prior two weeks, according to Ministry of Finance data .
The purchases suggest investors took advantage of the yen's sharp rally following last month's joint U.S.-Japan currency intervention to snap up overseas assets at more favorable exchange rates, said market watchers.
"Intervention has 'turbo charged' the carry trade for fundamental & long term investors," according Jesper Koll, expert director at Monex Group. "As long as the cost of money in Japan is lower than the return overseas, carry trades will re-assert," Koll said.
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