Investors Rebuild Yen Carry Trades After Costly Tokyo Interventions
Market participants are using recent Japanese currency interventions as an entry point to re-establish short yen positions, betting that wide interest rate differentials will continue to drive the carry trade despite official resistance.
Hedge funds and private investors are aggressively rebuilding short positions against the yen, treating recent official market interventions as an opportunity to sell the currency at higher prices. Despite a historic joint effort by the US and Japan to support the currency last month, the yen has quickly surrendered its gains and slid back toward 160 per dollar.
The underlying driver remains the wide gap between Japan’s 1 percent policy rate and higher yields globally. Ashwin Binwani, founder of Alpha Binwani Capital, purchased dollars against the yen at around 157, a position currently yielding profits as the pair trades near 159.46. Binwani stated that "the carry trade is too good to miss," viewing official market actions as a chance to sell at higher levels.
Institutional data confirms this trend across real-money accounts. Bart Wakabayashi, Tokyo branch manager at State Street Bank & Trust, noted that investors are heavily selling the yen against Group-of-10 currencies, with the Australian dollar seeing the most interest. Shorting the currency against higher-yielding peers like the Colombian peso, Turkish lira, and Norwegian krone has already returned more than 10 percent this year.
This strategy carries significant risk, as rebuilding shorts increases the likelihood of further official market action. Tokyo spent an estimated $53 billion in a single-day operation, followed by roughly $34 billion on July 31, making repeated interventions increasingly costly. US Treasury Secretary Scott Bessent has reiterated Washington's commitment to doing whatever it takes to support Japan, warning that yen weakness risks broader depreciation across Asia.
Market strategists warn that rising one-year yen forwards indicate traders are using post-intervention bounces to reload their positions. Yuxuan Tang, Asia head of rates and foreign-exchange strategy at JPMorgan Private Bank, suggested that carry traders could push the pair to retest 162 unless there is a meaningful turn lower in the dollar and US yields. Meanwhile, Prime Minister Sanae Takaichi’s government reportedly supports a near-term Bank of Japan rate hike in September or October, though overnight index swaps only price in a single quarter-point increase by then.
Some portfolio managers suggest the yen could become a less attractive funding currency if the central bank acts decisively. Carol Lye at Brandywine Global Investment Management argued that successful intervention should cap the currency's weakness at 162, prompting investors to fund trades using the euro or Swiss franc instead. Yet, for many, the structural appeal remains intact, with Fidelity International's George Efstathopoulos noting that these strategies will continue to flourish for as long as the central bank remains behind the curve.
