It has been mooted on several currency forums, including here, that volatility is the enemy of the carry trade.  For this reason, many analysts predicted that last week’s bond market collapse would send Japanese capital-which had been parked in the US-back to Japan, thus triggering a rapid appreciation in the Japanese Yen. But nothing of the sort materialized. The Yen was virtually unaffected by the week’s turmoil, as Japanese investors continue to invest in countries that offer high-yielding investments, such as New Zealand, which surprisingly raised interest rates to 8%.  A Japanese senior official supported this notion, reports The Financial Times:

“The size of any carry trades that would unwind is relatively small compared to the entire foreign-exchange market.”

Read More: Japan official sees no end to carry trade