Surging yen upends popular global FX carry trades
LONDON/SINGAPORE -A perfect storm of political, policy and technical risks has upended one of the year's most popular currency trades, sending the Japanese yen soaring from 38-year lows with ripples spreading as far as Switzerland, Australia and Mexico.
"The yen is a classic example of where positioning and top-down factors are aligning," said Hugh Gimber, global market strategist at JPMorgan Asset Management. "Because this unwinding of short yen positioning is correlated with the so-called carry trade it can affect other carry positions as well," said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America.Carry trades have proved hugely popular this year and last, fuelled by a combination of low volatility and big differences between central bank interest rates.
The recent pick up in volatility has added pressure to carry trades that did well in the more benign markets of the first half of 2024, said Nathan Swami, head of currency trading at Citi in Singapore "It's all about carry trades. You can see from the daily moves in say the Swiss franc, when the news isn't to do with the franc but the yen," said Jamie Niven, senior fixed income portfolio manager at Candriam.Meanwhile, the Australian dollar has fallen 3.6% against the U.S. dollar in two weeks, and nearly 6% on the yen, its most in a fortnight since the pandemic volatility of March 2020.
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