Yen carry trades have generated approximately 18% returns since the start of 2026, driven by US dollar weakness which has fallen roughly 10% against major currencies since early 2025. The strategy involves borrowing Japanese yen at the Bank of Japan’s policy rate of around 1% to invest in higher-yielding dollar-denominated assets or currencies. The yen is currently trading around 159 to 162 per dollar, levels not seen in decades, amplifying traders’ profits. JPMorgan and Morgan Stanley have identified the USD/JPY exchange rate as a key barometer for broader dollar trends, while hedge funds are aggressively rebuilding short yen positions. The main risk remains a sudden yen appreciation that could trigger a cascade of position liquidations, with potential spillover effects on global equity and bond markets.
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