Japanese 10,000 yen banknotes are sorted in Kyoto, Japan on Tuesday, January 27, 2026.
Kentaro Takahashi | Bloomberg | Getty Images
Japan’s historic effort to support the yen may have had the unintended consequence of giving some investors a better opportunity to double down on carry trades.
Japanese investors bought more than 5 trillion yen in net foreign stocks and long-term bonds in the two weeks ending Aug. 15, and sold more than 300 billion yen in the previous two weeks, according to Ministry of Finance data.
Market watchers say the purchases suggest investors are taking advantage of the yen’s sharp rise after last month’s joint U.S.-Japan foreign exchange intervention to buy up overseas assets at more favorable exchange rates.
“The intervention has ‘turbocharged’ carry trades for fundamental and long-term investors,” said Jesper Coll, expert director at Monex Group. “As long as Japan’s cost of money is lower than overseas returns, the carry trade will be active again,” Coll said.
Year-to-date yen performance
Although authorities have succeeded in shaking up the yen’s strength, they have done little to change the incentives for investors to borrow and raise money cheaply in Japan and invest that money in high-yield assets overseas.
of circle It rose from about $164 per dollar before the intervention to about $155, but quickly gave up most of that gain. It then fell towards $159 against the dollar.
As a result, there are growing views that the yen will continue to be under pressure unless the Bank of Japan raises interest rates enough to significantly narrow the bond yield gap with the United States. The difference in 10-year yields between Japan and the U.S. was about 1.8 percentage points as of Thursday.
The short-term strength of the yen suggests that investors are viewing periods of strength as an opportunity to restructure carry trade positions rather than abandon them.
This dynamic is particularly evident among Japanese institutional investors. Long-term investors such as pension funds and asset management companies continued to sell the yen, said Masahiko Lu, fixed income strategist at State Street Investment Management.
“Interventions have only addressed the ‘symptoms’ and not cured the ‘disease,'” said Francis Tan, Asia chief strategist at Indosuez Wealth Management, citing structural factors such as Japan’s low borrowing costs and large interest rate differentials with other major economies.
Koll also said Japanese retail and institutional investors are taking advantage of the strong yen to establish new positions in non-yen assets, particularly high-yield U.S. banknotes and bonds.
“While the market is much less one-sided than it was before the intervention, the incentive to raise funds in yen remains attractive as the interest rate differential between Japan and the U.S. remains wide,” Lu said.
Other flow data more directly indicate held carry positions. Masahiko Lu, fixed income strategist at State Street Global Advisors, said long-term investors continue to sell the low-yielding yen against high-yielding G10 currencies, consistent with investors using the Japanese currency to fund positions elsewhere.
Ashwin Binwani, founder of Alpha Binwani Capital, said institutional investors continued to carry trade against a basket of G10 currencies led by the Australian dollar.
There are also signs that some currency traders are rebuilding their bearish bets on the yen as the effects of the intervention fade.
Binwani exited his long position in the dollar-yen after the US aid intervention, and then re-established it at just above $157, anticipating further yen depreciation. “Following the news of US intervention, we booked profits and re-established our long dollar/yen position to just above 157,” he said.
Binwani said an intervention-driven rally could be a better entry point for investors to sell the currency. Although it’s different from borrowing yen and investing it directly in high-yield assets, the trade is underpinned by the same fundamental force: Japan’s relatively low interest rates, which continue to put pressure on its currency.
However, overall speculative positions against the yen are decreasing. As regulators stepped in, leveraged funds reduced their net short positions in the yen from about 138,000 contracts at the end of June to 59,526 contracts as of August 11, according to CFTC data.
