Investors borrow yen at low interest rates and invest in higher-yielding assets, aiming to profit from the interest rate difference.
Japan's ultra-low interest rate policy for years fueled the yen carry trade. Cheap borrowing made it attractive for investors to seek higher returns elsewhere.
The yen's value can fluctuate significantly. A sudden yen appreciation can wipe out profits and lead to substantial losses for carry trade investors.
The Bank of Japan's recent policy shift might signal the end of the traditional yen carry trade era. Investors need to adapt.
While tempting, the yen carry trade is risky. Understand the risks before diving in. Consider other investment options.