What is Yen Carry Trade?

The Yen Carry Trade is a strategy that leverages the difference in interest rates between Japan and the US. With the Federal Reserve raising interest rates significantly to between 5.25% and 5.5%, while the Bank of Japan has maintained low rates amid ongoing deflation, investors can borrow Japanese yen with minimal cost. They then invest those funds in higher-yielding assets, such as US investments, earning distinction greater than the cost of borrowing. This practice leads to the sale of Japanese yen, decreasing its value and simultaneously inflating the Japanese stock market, due to increased capital flowing into foreign assets.