Japan's attempts to intervene in the yen have instead turbocharged the carry trade, prompting Japanese investors to pile into more than 5 trillion yen worth of foreign assets in the two weeks through August 15, a sharp reversal from net sales of 300 billion yen in the prior two-week period. After coordinated intervention with the United States in July pushed the yen from 164 per dollar to around 155 per dollar, investors seized the chance to buy foreign assets at cheaper prices. Jesper Koll of Monex Group said the intervention accelerated the carry trade because borrowing costs in Japan remain lower than returns abroad. The yen has since weakened back toward 159 per dollar, and the yield gap between 10-year US and Japanese government bonds still stands at 1.8 percentage points. Institutional and retail investors continue to sell yen to buy US bonds and G10 currencies, especially the Australian dollar, while leveraged funds have cut their net short yen positions from 138,000 contracts to 59,526 contracts as of August 11.
Monex Group, Inc.Monex Group's Jesper Koll comments on accelerated carry trade, indicating increased trading activity and demand for their services.
Japan's intervention backfired, fueling carry trade and weakening yen, making USD stronger relative to JPY.
