Eslworldblog

The yen’s persistent role in global carry trades continues to vex market participants, causing a ripple effect across currencies and financial markets. While carry trades — borrowing in a low-interest-rate currency and investing in higher-yielding assets — have long been a staple of foreign exchange strategy, the yen has remained a dominant currency for such trades. However, its enduring relevance is causing concern among investors and policymakers alike. Despite various global shifts in monetary policy, the yen's low-interest-rate environment, courtesy of Japan's long-standing economic strategy, has kept it attractive for traders looking to profit from the interest rate differentials. The Bank of Japan’s stance on maintaining ultra-low rates has kept the yen as a funding currency for carry trades, especially as interest rates rise elsewhere. The problem, however, is the strain these trades are putting on global financial markets. The recent volatility in yen-based transactions...