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The Japanese yen: safe haven and cheap funding currency
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Fact, law or dataA rule, statute, definition or measured number.
Japan's currency, made one of the world's cheapest to borrow by decades of near-zero rates, which fuels the 'carry trade'.
See it on the Money & Finance map →How it works
The Bank of Japan kept rates near or below zero for most of 1999–2024, including negative rates from 2016. Investors borrowed yen cheaply to buy higher-yielding assets abroad, the carry trade. The yen sank to about 160 per dollar in 2024, its weakest since 1986, and Japan's Finance Ministry spent nearly $100 billion buying yen to support it. The BOJ began raising rates in March 2024. In global scares the yen often rises, as Japanese investors bring money home.
Why it matters
Carry-trade unwinds can jolt global markets, as on August 5, 2024. A weak yen also makes Japanese exports and travel to Japan cheap.
Facts, rules and data
BOJ rate history, Japan's Ministry of Finance intervention reports and BIS research on the 2024 carry-trade unwind.
Debates and risks
How big the yen carry trade really is: estimates range from a few hundred billion to several trillion dollars, much of it hidden in derivatives.
Connections (4)
▸The Japanese yen: safe haven and cheap funding currency was shaped by near-zero rates in Japan's bubble and 'lost decades' (1990–)Fact, law or data
The connection
After Japan's bubble burst in 1990, deflation and weak growth pushed the Bank of Japan to zero rates by 1999, quantitative easing in 2001, negative rates in 2016 and caps on bond yields. Ultra-low rates made the yen among the cheapest currencies to borrow, the root of the carry trade, and weakened it as other central banks hiked in 2022–24.
When and why
BOJ policy from 1999 to 2024, intensified under Governor Haruhiko Kuroda from 2013; the exit began in March 2024 under Governor Kazuo Ueda.
How we know
BOJ policy statements and rate history; the yen fell to about 160 per dollar in 2024, its weakest since 1986.
Debates and risks
Whether Japan's long zero-rate experiment helped or delayed recovery, and how far rates can rise with government debt above 200% of GDP.
▸The Japanese yen: safe haven and cheap funding currency funds global carry trades in Exchange rates and currency marketsFact, law or data
The connection
In a carry trade, an investor borrows yen at near-zero rates, converts them, and buys higher-yielding assets such as US Treasuries or Mexican pesos. It pays while the yen stays weak, and the selling keeps it weak. When the yen jumps, borrowers rush to repay, selling foreign assets and buying yen, pushing it higher still and jolting markets worldwide.
When and why
August 5, 2024: after a BOJ rate hike and weak US jobs data, the yen surged and Japan's Nikkei fell 12.4%, its worst day since 1987.
How we know
BIS analysis of the August 2024 episode, futures-positioning data from the CFTC, and Japan's retail currency-trading statistics.
Debates and risks
How much of the carry trade was actually unwound in 2024, and whether further BOJ hikes could trigger a repeat, is debated.
▸The carry trade: borrowing in low-rate currencies to buy high yields is classically funded in The Japanese yen: safe haven and cheap funding currencyFact, law or data
The connection
For most of 1999–2024 the Bank of Japan held rates near or below zero, so yen were among the cheapest money in the world to borrow. Investors borrowed yen, sold them for dollars, pesos or Australian dollars, and bought higher-yielding assets. That selling kept the yen weak, which made the trade more profitable, until it reversed.
When and why
Tokyo and global markets since the late 1990s; players include hedge funds, banks and Japanese retail traders nicknamed 'Mrs. Watanabe'.
How we know
CFTC data on speculative yen positions, BIS cross-border yen lending data and Bank of Japan rate history.
Debates and risks
The trade's true size is unknown, and Japan's rising rates since 2024 may shrink it for good.
▸The yen carry-trade unwind and the Aug 5, 2024 crash began with a sudden surge in The Japanese yen: safe haven and cheap funding currencyFact, law or data
The connection
The yen rose from about 162 per dollar in early July 2024 to about 142 by August 5, after Japan's intervention, the July 31 Bank of Japan rate hike and weak US jobs data. A stronger yen raised the cost of repaying yen loans, forcing traders to sell assets and buy yen, which pushed the yen higher still.
When and why
Tokyo, New York and global markets, July 11 to August 5, 2024.
How we know
Exchange-rate records, Japan's Finance Ministry intervention data and the BIS August 2024 bulletin.
Debates and risks
Whether the yen surge or the weak US jobs report did more to trigger the selloff is debated.