Stephen Jen, economist at Eurizon SLJ Capital, predicts the yen will strengthen against the US dollar, reversing months of underperformance and threatening carry trades that depend on a weak yen. The currency call puts a popular strategy at risk.
Carry trades involve borrowing in cheap yen to invest in higher-yielding assets. Months of yen weakness fueled these positions. A strengthening yen forces traders to unwind leveraged bets, creating losses across the strategy.
If Jen's call proves right, yen appreciation triggers position exits and erodes profits for traders globally.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing