South Korea’s central bank warned on Friday that the so-called yen carry trade might expand, citing prospects for the yen’s weakness and investors’ reduced bets on safer assets.
The yen-funded carry trade refers to the borrowing of yen at low interest rates to invest in higher-yielding and riskier assets.
Usually, the yen carry trade tends to increase when the yen goes through a period of prolonged weakness and the interest-rate gap among countries rises or global market jitters ease.
The Bank of Korea said in a report that the stage is set for the yen carry trade to expand, given that the yen’s declining trend may continue and investors’ appetite for safe assets is winding down amid the stabilizing global markets.
The yen has been under heavy downward pressure against the dollar on the back of Japan’s “Abenomics” ― a mixture of aggressive monetary and fiscal policies preached by its Prime Minister Shinzo Abe. The Japanese currency has weakened more than 20 percent to the greenback since September. (Yonhap News)
