Explainer-What is the yen carry trade?

The yen carry trade is an investment strategy where funds are borrowed at low interest rates, such as from the Japanese yen, and then used to purchase currencies with higher yields, like the U.S. dollar. This practice has been a major driver in global markets for years. However, concerns have arisen as the Bank of Japan appears poised to raise interest rates soon, which could undermine the profitability of this trade.

The yen has surged to a seven-month high against other currencies, prompting investors to question the sustainability of the yen carry trade.