Why are Foreign Institutional Investors (FIIs) selling in India?

FIIs are increasing selling in India due to a postponed US-India deal, a growing trade deficit, and geopolitical factors.

How are rising Japanese bond yields affecting Asian markets?

Rising Japanese yields are strengthening the yen, leading to a reversal of the yen carry trade and prompting FIIs to book profits in Asian markets.

What is the yen carry trade and why is it reversing?

The yen carry trade involves borrowing yen at low rates to invest elsewhere. Its reversal is driven by rising Japanese yields making yen appreciation more likely, reducing its attractiveness.

Home / Business and Economy / Yen Carry Trade Reversal Sparks FII Selling

Yen Carry Trade Reversal Sparks FII Selling

14 Dec

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Summary

FII selling increased in India due to postponed US-India deal.
Rising Japanese bond yields triggered yen appreciation and carry trade reversal.
Asian indices saw significant gains in 2025, prompting profit-taking.

Yen Carry Trade Reversal Sparks FII Selling

Indian markets experienced heightened volatility at the start of December, marked by an increase in FII selling compared to the previous month. This cautious sentiment stems from the postponement of a significant US-India deal, a widening trade deficit, and geopolitical considerations.

The shift in investor behavior was amplified by developments in Asian markets. In the second week of December, FIIs intensified profit-taking across the region, influenced by rising Japanese bond yields and a desire to secure gains after strong performances from markets like China, Japan, South Korea, and Taiwan.

The Japanese 10-year yield climbed to 1.95%, up from 1.70% a month prior. This rise in yields has caused the yen to appreciate, increasing the risk of a reversal in the yen carry trade, which could lead to widespread profit-booking in emerging markets as yen-based investments are unwound.