Yen Carry Trade
Summary: The yen carry trade is a financial strategy where investors borrow Japanese yen at low interest rates and invest in higher-yield assets in other countries. The trade relies on stable interest rate differentials and favorable currency fluctuations. On August 05, 2024, a significant market downturn occurred, largely due to the unwinding of the yen carry trade following the Bank of Japan’s decision to raise interest rates and reduce its bond-buying program. This shift made the yen carry trade less profitable, leading to a rapid sell-off and severe declines in global markets. Additional factors, including fears of a US recession and geopolitical tensions, exacerbated the market instability.
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