Are JPY Carry Trades Still Viable?


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Ever since Japanese PM Shinzo Abe won the snap election back in December 2012, the JPY has weakened sharply and steadily; however, the pace of JPY weakness as of late has become less intense, but looking at the COT (Commitment Of Traders) Report on March 4, 2014, there is still a 5:1 ratio (20K Long v 100K Short) preference on shorting the JPY, or carry JPY against other currencies.  In essence, the JPY carry trade is still viable, at least for now.

Of course, everyone that’s interested in yen carry trades  is paying close attention to any policy changes with BOJ (Bank of Japan) and the upcoming, much publicized sales tax hike.  Here’s what BOJ has to say about monetary policy (March 11, 2014):

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  • (JP) BOJ deferred on further easing ahead of sales tax increase. Maintains its policy with monetary base to rise between ¥60-70T and keeps economic assessment unchanged for the 7th straight month that economy to recover moderately. Export view was trimmed
  • (JP) In post rate decision press conference BOJ Gov Kuroda said Japan was moving steadily to 2% CPI target; No need to adjust policy at this time but will not hesitate to do so if necessary.
  • (JP) Japan government tax panel member Doi: Japan decision on corp tax cut possible in June; Japan could rev cut tax up to 30% – financial press interview

Note: The last time sales tax was hiked back in 1997 caused the Japanese government its economy as revenues drop due to consumers unwilling to spent.  The upcoming April tax hike from the current 5% to 8% will be a true test of Japanese consumer sentiment.  Although it seems that both Japanese government and the BOJ are monitoring the situation closely, as they vowed for more policy actions should situation turn for the worse.

Another interesting observation from recent market price action shows that the failure of USD/JPY pair to break a new low on the back of  two consecutive months of major disappointments out of US Nonfarm Payroll releases and with the spat of risk aversion stemming from China, Ukraine, and Korea was seen as encouraging by yen traders, especially considering that JPY was the most sought after safe-haven currency in the past 4 years prior to PM Abe taking office in 2013.

All in all, assuming the Japanese economy does not fall off sharply, there is very little chance for significant strengthening of the yen, especially with BOJ and the Japanese government taking turns at daily verbal intervention, all in attempts to drive the yen weaker.  I would still be looking to SELL the yen on rally and I wouldn’t be surprised to see USDJPY pair approaching the 110.00 level by the end of the year, and by all means, I expect JPY carry trades to be the most profitable trades for 2014.






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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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