What did the Bank of Japan announce in July 2024?

The Bank of Japan unexpectedly raised interest rates to 0.5% and reduced its JGB purchases.

How will the BoJ's rate hike affect the yen carry trade?

A narrower interest rate differential makes yen carry trades less profitable, prompting traders to exit positions.

When is the next Bank of Japan interest rate decision?

Economists expect the BoJ to make another interest rate decision on Friday, December 19.

Home / Business and Economy / BoJ Shocks Markets: Rate Hike Triggers Yen Carry Trade Unwind

BoJ Shocks Markets: Rate Hike Triggers Yen Carry Trade Unwind

16 Dec

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Summary

Bank of Japan unexpectedly raised interest rates to 0.5% in July 2024.
This policy shift coincided with a dovish US Federal Reserve.
Rising Japanese Government Bond yields signal a potential yen carry trade unwind.

BoJ Shocks Markets: Rate Hike Triggers Yen Carry Trade Unwind

The Bank of Japan recently implemented a significant monetary policy shift in July 2024, unexpectedly increasing interest rates to 0.5% and curtailing Japanese Government Bond purchases. This tightening measure contrasts sharply with the Federal Reserve's dovish stance, prompting a rapid unwind of the yen carry trade. The interest rate differential between the US and Japan is narrowing, making leveraged yen positions less attractive for traders.

This policy pivot has driven 10-year JGB yields to their highest levels since April 2007, intensifying fears of widespread unwinding of carry trade strategies. Investors are exiting riskier assets and liquidating yen-denominated loans. The market is keenly anticipating Friday, December 19, when economists predict another 25-basis-point hike by the BoJ, potentially bringing rates to 0.75%.