The carry trade has come under pressure as the yen surged, while markets increasingly priced in a hawkish Bank of Japan against a backdrop of expectations for a rate hike. Outstanding cross-border yen borrowing hit a record high, and the yen is showing signs of a rapid reversal.
According to Reuters, the long-established carry trade is coming under pressure as the yen surges on expectations that the Bank of Japan will raise interest rates next week. Market participants say the unwinding was already under way before a BOJ rate hike became a near certainty, leaving the carry trade in a vulnerable state.
An analysis of Bank for International Settlements data on outstanding cross-border yen borrowing found that the figure reached a record ¥360 trillion (approximately $2.35 trillion) as of March. This is seen as an indication of the build-up in carry trades and could influence their future direction.