Hot Currency Trade Takes Knock as BOJ Shift Ripples Across World
- ‘The carry trade still works’ given yield gap: SocGen’s Juckes
- Still, traders may start to reassess as BOJ edges toward hikes
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One of the currency world’s most lucrative trading strategies suffered a setback on Friday after the Bank of Japan surprised investors by edging closer to ending its extraordinarily loose monetary policy.
The carry trade, where investors borrow money in currencies with low rates and invest in higher-yielding assets, is showing signs of faltering after the BOJ tweaked its policy in a way that essentially lifts the cap on 10-yields to 1% from 0.5%. The MSCI index that tracks emerging markets FX — some of the world’s highest-yielding — fell as much as 0.4%.