Daily News Analysis

Yen Carry Trade

stylish_lining

Background

Recently, global stock markets faced sharp declines, driven by cautious investor sentiment influenced by factors like potential economic recession in the US and rising geopolitical tensions in West Asia. However, a significant trigger for this downturn was the unwinding of the yen carry trade.

What is the Yen Carry Trade?

The yen carry trade is a financial strategy where investors borrow money in a country with low interest rates and invest it in countries with higher interest rates to earn a profit. Here’s how it works:

  • Low Borrowing Costs: Japan, through its central bank (the Bank of Japan, or BoJ), maintained exceptionally low interest rates—near zero from 2011 to 2016 and even below zero (at -0.10%) since 2016. This policy aimed to stimulate economic growth.
  • Investment Opportunities: Investors took advantage of these low rates by borrowing yen cheaply and investing in assets in higher-yielding countries like Brazil, Mexico, India, and the US, seeking better returns.
  • Global Impact: Billions of dollars flowed into international markets through these carry trades, fueling investments across various countries.

Recent Changes and Unwinding

  • Interest Rate Shift: The BoJ recently raised its main interest rate to 0.25%, marking a significant departure from its long-standing ultra-loose monetary policy.
  • Market Reaction: This unexpected increase caused the yen to appreciate sharply, surprising many investors who had anticipated its continued decline.
  • Impact on Carry Trades: The rising cost of borrowing in yen diminished the profitability of yen carry trades, leading to substantial losses for investors. As a result, many began to "unwind" these trades, selling off their international assets.
  • Global Consequences: The unwinding of the yen carry trade contributed to increased volatility in global markets, as investors liquidated positions in currencies such as the Brazilian real, Mexican peso, and Indian rupee.

Conclusion

The unwinding of the yen carry trade serves as a reminder of the interconnectedness of global financial markets. Changes in monetary policy by a central bank can have far-reaching implications, affecting not only local economies but also international investment flows and market stability.

Inclusivity of People with Disabilities in STEM Education

Current Situation: India has nearly 63 million people with disabilities (NFHS-5), but their representation in STEM fields is very low. Despite strong laws like the Right to Educat
Share It

National Handloom Day and the Swadeshi Movement

National Handloom Day Date: Celebrated every year on 7th August in India. Significance: Marks the launch of the Swadeshi Movement on 7 August 1905, which promoted indigenous indus
Share It

World Trade Organization (WTO)

Why in the News? India recently called for significant reforms at the World Trade Organization (WTO) during a high-level mini-ministerial meeting in Paris ahead of the 14th Ministerial Conferen
Share It

Israel-US-Iran Conflict

Recently, tensions in the Middle East escalated dramatically as Israel launched “Operation Rising Lion”, a significant military strike aimed at Iranian nuclear infrastructure and balli
Share It

Philippines President’s Visit to India (2025)

In 2025, during the Philippines President's state visit to India, both nations elevated their bilateral relationship to a Strategic Partnership. The visit reaffirmed the 1952 Treaty of Friends
Share It

India's Participation in the 51st G7 Summit

India participated as an Outreach Country in the 51st G7 Summit held in Kananaskis, Canada in 2025. Key Outcomes of the 51st G7 Summit (2025): Kananaskis Wildfire Charter:
Share It

Quit India Movement (QIM)

India commemorates 8th August every year as Quit India Movement Day (also known as August Kranti Diwas) to honor the historic movement that demanded the immediate end of British colonial rule in I
Share It

National Waterway-57 (Kopili River)

The National Waterway-57 (NW 57), running through the Kopili River in Assam, has been officially operationalised, marking a significant step in India’s development of Inland Water Transport
Share It

Union Cabinet Approves National Sports Policy (NSP) 2025

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the National Sports Policy (NSP) 2025, aiming to address long-standing challenges and transform India into a global sportin
Share It

CIMMYT’s Financial Crisis

The International Maize and Wheat Improvement Center (CIMMYT), a pivotal institution in the development of agricultural research for maize, wheat, and related crops, is facing significant financia
Share It

Newsletter Subscription


ACQ IAS
ACQ IAS