NewsDialy
The short version is that Japan’s central bank is tightening monetary policy, which creates a risk for investors who used the yen to borrow cheaply and buy higher-yielding assets elsewhere.
This strategy is known as a carry trade, where a trader borrows in a low-interest currency to invest in a market with higher returns.
As the central bank moves to tighten policy, the cost of borrowing in yen may rise, forcing these investors to unwind their positions quickly.
What the policy shift means for the trade In plain terms, a carry trade relies on a stable or weakening yen. When the yen is weak, it is cheap to borrow.
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