Yen's surge to seven-month high threatens global carry trade as BoJ rate hike bets grow
The yen rallied to a seven-month high of ¥152.90 per dollar, driven by 80% market pricing of a Bank of Japan rate hike next week. The move is unwinding the yen carry trade, a pillar of global markets, and comes as the ECB prepares to raise rates on Thursday and oil nears €95 (US$100) a barrel. European equities slipped, with the STOXX 600 down 0.4%, per Reuters.
Bottom line — The yen's 4% weekly gain, its largest since July 2024, threatens to unwind record ¥360 trillion (€2.3 trillion) carry trade positions, per Jefferies analysis.
Go deeper (9)
- The yen traded at ¥153.80-82 per dollar in Tokyo, up ¥1.75 from the previous day, and briefly touched ¥152.90, its strongest since February, per Intellinews and Reuters.
- Markets price an 80% probability that the BoJ will raise its policy rate by 0.25 percentage points at its 17-18 September meeting, according to FXStreet and FinanceFeeds.
- Japan's Ministry of Finance confirmed it spent ¥15.4 trillion (€99 billion) on yen-buying intervention between 30 July and 26 August, the largest such operation on record, per FXStreet.
- Cross-border yen borrowing hit a record ¥360 trillion (€2.3 trillion) as of March, marking the largest carry-trade build-up in three decades, according to a Jefferies analysis of BIS data, per Reuters.
- A stronger yen raises the cost of repaying yen-denominated loans used to fund dollar-denominated crypto positions, but Bitcoin held near €52,600 (€48,000) on Wednesday, per BeInCrypto.
- The ECB is all but certain to raise euro zone rates by a quarter point on Thursday, while the BoE is expected to hold rates at its decision on 17 September, per Reuters and London South East.
- Oil prices climbed after Iran-backed Houthis attacked Saudi energy facilities, with Brent crude nearing €95 (US$100) a barrel, per Reuters and AJOT.
- US inflation data on Friday could set expectations for the Federal Reserve's meeting next week, where money markets show a 58% chance of a rate rise, per London South East.
- Copper hit a record high of €9,914 (US$14,728) per tonne on the London Metal Exchange, driven by supply tightness and flows into the US ahead of possible tariffs, per Reuters.