Return of the Carry Trade

The 90’s are roaring back in fashion as carry trade opportunities reignite. The carry trade is a way to profit off currencies and rates. Investors borrow money in one country where rates are low and exchange it for currency in a country where rates are high. The carry trade went away and was rarely used when the global economy went into a recession. The easy monetary policies around the world cut down on carry trades. The artificially low rates kept the dollar and euro as currency of choice to borrow from.

Japan is trying to keep the yen artificially low. The yen was the currency of choice back in the 1990s. Investors are borrowing yen and then investing in Mexican pesos, the Brazilian real, or other countries where the interest rates are higher than the rest of the world. This only works as long as Japan keeps flooding the market with yen to keep rates low and the currency from strengthening. As long as the yen keeps falling, investors will profit from the spread in rates and the currency play.