Yen Seen Strengthening Against Dollar, Threatening $4 Trillion Carry Trades

1 articles · Updated · Bloomberg · May 26

Stephen Jen of Eurizon SLJ Capital said the yen is poised to strengthen against the US dollar after months of underperformance, a shift he warned could disrupt one of global markets’ most crowded trades.
The risk centers on carry trades, in which investors borrow in low-yielding currencies and buy higher-yielding assets; the yen has been the preferred funding currency because of its persistent weakness and low rates.
A stronger yen would raise funding costs and pressure positions built on continued currency softness, potentially forcing investors to unwind trades across asset classes.
Jen’s call points to a broader market vulnerability: if the yen reverses sharply, a strategy long supported by Japan’s ultra-low-rate backdrop could become a source of instability.

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