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…
The Japanese yen-based carry trade, historically profitable (35-40% ROI with 10x leverage), is mathematically broken by the Bank of Japan's (BOJ) rate normalization.
The current rate differential (4.25% US vs 1.00% JPY) drops to 3.25% before costs and yen appreciation. If the BOJ raises rates by more than an additional 50 basis points or…
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