The yen carry trade ghost to rise again..!?

The bank of japan (BoJ), the central bank of japan, on Friday, january 24, raised its key interest rate by 25 basis points and set the benchmark interest rate at 0.5%. Since the benchmark interest rate has been set at a high level in japan since the 2008 global financial crisis, the yen carry trade ghost is expected to erupt again in international stock markets. This decision by the bank of japan caused a stir in global markets. Following this announcement, the Japanese Nikkei index, which had been rising in the morning, reversed direction and fell. The 400-point increase recorded in the morning after the announcement of the interest rate hike decreased to just 100 points in the next few minutes. Following this, US futures contracts have also started to decline, and Dow Jones Futures contracts have also entered a downward trend. The impact of this on the indian market has not been directly and immediately reflected, the main reason for this is that most investments are made in the US market through Yen Carry Trade. Direct investments in the indian market are very low. The value of the Japanese yen against the US dollar has risen immediately after the interest rate hike. Currently, the value of the Japanese yen against the US dollar has strengthened to 155.
The interest rate hike by the bank of japan was expected by most market observers, as the central bank predicted that Japan's inflation could reach 2% by the end of 2025. Japan's core inflation rate recently hit a 16-month high. For years, the bank of japan has kept its benchmark interest rate near zero, prompting Japanese people to borrow domestically and invest in foreign stocks. This investment model is a jackpot as long as the Japanese yen is strong and interest rates are low. But if there is a setback, Japanese investments in foreign markets are returned to the home country. This is known as the "yen carry trade." Despite the bank of Japan's rate hike, indian stock markets remained higher, albeit with some volatility, in morning trade on Friday. The Nifty 50 index rose 89.80 points to 23,295, while the Sensex rose 316.10 points to 76,836.
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Sowmiya Sriram

24/01/2025 06:55 PM