Definition
Borrowing in a currency with low interest rates and investing in one with higher rates, to pocket the difference.
The story
For years, investors borrowed cheaply in Japanese yen and put the money into higher-yielding assets elsewhere. It works until the low-rate currency jumps. In early August 2024, a rapid unwinding of yen carry trades fed a global sell-off, and Japan's Nikkei 225 fell 12.4% on Aug 5, its worst day since 1987.
Why markets watch it
When carry trades unwind, the scramble to repay can move markets far from where they started.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms