What it is
The yen carry trade is a prominent example of a carry trade, leveraging the historically low-interest-rate policy maintained by the Bank of Japan. Investors borrow yen at minimal interest costs, then convert these yen into other currencies, such as the US dollar or Australian dollar, to invest in assets that offer significantly higher yields. The objective is to pocket the difference between the low borrowing cost in yen and the higher returns from the foreign investment.
This trade is frequently mentioned in financial news, especially during periods of diverging monetary policies among major central banks. When other central banks are raising rates while the Bank of Japan keeps its rates low, the yen often weakens as it is sold for higher-yielding currencies. However, a sudden shift in market sentiment or a change in the Bank of Japan's policy could cause the yen to strengthen rapidly, leading to substantial losses for those engaged in the yen carry trade.
Why it matters
The yen carry trade can impact global financial liquidity and currency markets. Its unwinding can cause market volatility, affecting your investments.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice