Unwinding of yen carry trades puts pressure on high-yielding emerging market currencies

The rapid appreciation of the yen is bringing an end to a lucrative emerging-market trading strategy. Since Japanese authorities intervened to support the yen in late July, JPMorgan’s emerging-market currency index denominated in yen has plummeted by more than 4%. Speculation this week that the Bank of Japan may raise interest rates further has prompted traders to rush to unwind yen-funded carry trades, accelerating the decline. While market attention has largely focused on the USD/JPY exchange rate this week, high-yielding emerging-market currencies have also suffered significant losses: on Thursday, the Brazilian real, South African rand, and Mexican peso all fell by more than 1% against the yen. It is no coincidence that, until this week, these three currencies were precisely the ones...

Sina FinanceSep 4 17:18

Nomura warns: The Bank of Japan may raise interest rates three consecutive times in extreme scenarios, triggering a broader unwind of yen carry trades.

Nomura believes that if the yen continues to weaken and approaches the 160 level, the Bank of Japan may raise interest rates consecutively in September, October, and December. The yen has risen more than 2% this week to around 156, with unwinding of carry trades spreading. Sanae Takaichi’s stance on central bank independence could be key to the yen’s next move.

Jin10Sep 4 10:46

Is the yen once again becoming a global problem? As the world's most critical carry trade faces a 'dimensionality reduction strike'...

① As foreign exchange traders in Tokyo held their breath before their screens, watching the yen surge sharply—gaining nearly 700 pips in three days under coordinated U.S.–Japan intervention; ② hedge fund managers in New York and emerging markets were preoccupied with another concern: could a wave of unwinding yen carry trades be about to erupt once again?

CLSAug 4 14:58