Yen Set for Further Gains as Bank of Japan Signals End to Carry Trades

Amundi's chief strategist sees potential for further gains for the yen as carry trades unwind.

Monica Defend, head of Amundi's Investment Institute, articulated that the Bank of Japan's interest rate hike in July indicated a shift in monetary policy, fundamentally altering the yen's outlook. "We believe that the fair value of the yen was, and still is, 140," she remarked. As of 16:22 London time, the yen traded at 142.09 per dollar.

In carry trades, investors borrow the yen at extremely low interest rates to invest in higher-yielding assets overseas. Following the Bank of Japan's rate hike, billions of dollars in such trades were unwound, contributing to the broader downturn in global financial markets.

Speaking on the sidelines of the Ambrosetti Forum at Lake Como, Defend said that despite the yen continuing to be used temporarily for financing, "We believe the era of carry trades is over."

She added that as the Bank of Japan moves forward with its interest rate hike cycle through 2025, local investors are likely to seize opportunities from rising domestic returns. "We may see some capital repatriation," she noted.