Carry trade continues to dampen Yen

The Yen continues to take a beating from currency traders, who seem intent on wringing profits out of the Japanese currency before the Central Bank raises interest rates. Two weeks ago, I reported that the carry trade would soon lose steam as central banks around the world hike rates and interest rate differentials begin to narrow. However, Japan’s Central Bank has assured investors that any monetary tightening will be implemented gradually, in order to avoid a rapid Yen appreciation. As a result, investors seem confident that the carry trade remains a safe bet in the short term. If the Yen contineus to depreciate, and real interest rates remain negative, such investors will look pretty savvy. Bloomberg News reports:

Investors are using the so-called carry trade to borrow yen at rates barely above zero percent and use the money to speculate in the markets where central bank rates are as much as 14.5 percentage points higher.

Read More: Yen Slumps Most in Nine Months as Interest-Rate Trades Resume