Analyse de marché
Share This Article
The yen carry trade relies on exploiting the interest rate differential between Japan (low) and foreign countries (high), adjusted by the exchange rate variation ROI_Carry (r_foreign – r_domestic) – ΔS_fx + α(Leverage) – β(Costs).
Historically, this model has generated annualized returns of about 35-40% due to an average favorable spread of 4.40% and a leverage of 10x.
However, the normalization of the Bank of Japan’s (BOJ) monetary policy is sharply compressing this differential. With foreign rates stable around 4.25% and the domestic rate rising from 0.25% to 1.00%, the differential drops to 3.25%.
Simultaneously, the significant appreciation of the yen (+2.5% in five days, estimated at +8% since the beginning of the year) erodes gains.
A simulation shows that with real rates of 4.25% (Fed) versus 1.00% (BOJ), a leverage of 10x, and a yen appreciation of 3% over the period, the effective return is still positive (approximately 28.75% annualized), but under strong pressure.
If the BOJ raises its rates by an additional 50 basis points (to 1.50%), the potential return drops to 23.75% (if the yen is stable). If the yen appreciates by an additional 8% in this scenario, the return becomes negative.
The model is deemed economically unviable if the BOJ raises its rates by >= +50 additional basis points and the yen appreciates by >= +5% additionally, signaling the current fragility of the historical carry trade mechanism.
Sources
