As market interest in a BOJ rate hike this month grows, the possibility of a big step is being discussed, and the risk of a yen carry trade liquidation has resurfaced.
The Bank of Japan will hold a Monetary Policy Meeting on the 18th of this month, and market expectations are growing that it will raise its policy rate again before the end of the year. The current policy rate is 1.00% per year, and a 0.50-point hike this time, described as a “big step,” has also been reported as a possibility.
On the afternoon of the 3rd, major Asian stock markets, including KOSPI, plunged temporarily before rebounding. Market participants said concerns about a liquidation of yen carry trades as the yen appreciated had unsettled investor sentiment.
A yen carry trade involves borrowing yen at low interest rates and investing the funds in higher-yielding assets such as the dollar. The current net short position is estimated at more than ¥2 trillion, and some analysts have warned that it could affect overseas asset markets as a whole.
Global yen carry trade funds are estimated to exceed $1 trillion, and there have been instances of liquidation shocks following the rate hike in July 2024. Experts say it is necessary to monitor the impact of current interest-rate trends on global capital flows.