Yen to Reclaim Carry Trade Currency Status

Friday, 01 April 2011 17:30

As the USD/JPY breaks the 84.00 barrier for the first time in 2011, the yen seems ready to become once again the number one choice for currency carry trades.

In the wake of the tsunami disaster, the Japan economical outlook remains very uncertain. Everything indicates that the Bank of Japan won’t be able to even think about a rate hike for quite some time. And as the spectacular mid-March USD/JPY rebound off 76.00 suggests that the yen isn’t ready to take off any time soon.

On the other hand, both the US and Europe show signs of economical recovery — many expect the ECB and the Fed to tighten their monetary policy within the year.

Hence, it becomes obvious that the yen’s exceptionally low interest rate (0 to 0.1 percent) will remain the reference for carry trades in the years to come, as it did before the recession. And it is only a matter of time before the US dollar loses its funding currency status that it shared with the yen when the Fed decided to lower its rate, in 2008.