The Yen Carry Trade Explained: How Japan’s Interest Rates Shape Global Markets
Understanding the world’s most powerful hidden force in financial markets — and why its reversal can trigger global turmoil. What Is the Yen Carry Trade? The Yen Carry Trade is one of the most influential financial strategies of the last three decades. It involves borrowing Japanese yen at very low interest rates , converting it into other currencies, and investing in higher-yielding assets across the world. For decades, Japan has maintained near-zero or negative interest rates due to low growth and deflation. This has made the yen the cheapest funding currency in the world . How It Works Borrow yen at ultra-low interest rates (e.g., 0%–0.5%) Convert yen into foreign currencies such as USD, EUR, AUD, or emerging-market FX Invest in higher-yield assets like: U.S. Treasury bonds (3–5%) Corporate bonds Stocks, tech and growth equities Commodities and metals Emerging market bonds and equity Earn the interest rate spread and asset ...
