According to a recent report, the Bank of Japan may raise interest rates at least once in the coming months. As Japan’s economy continues to surge ahead, the Central Bank is finding it difficult to justify its decade-long policy of easy money. Currency traders are watching this story closely, perhaps more closely than the monetary policy of any other country because it is Japan’s interest rate environment which is responsible for the record low valuation of the Yen. As long as interest rates remain at current levels, the carry trade (in which investors sell Yen and buy other currencies) will remain viable and continue to depress the Yen. AFX News reports:

It will take a definite signal that Japanese interest rates are set to rise further or that US interest rates are more likely to be cut than hiked next year, for the carry trade trend to dissipate, analysts said.

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