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Jan 16 - 06:55 PM

MUFG: The Return of the Carry Trade in USD/JPY; What to Expect?

By eFXdata  —  Jan 16 - 03:15 PM


MUFG provides insights into the potential return of the carry trade in the USD/JPY currency pair, highlighting the delay in market expectations of a rate hike by the Bank of Japan (BoJ) as a key driver. This delay opens up an opportunity for carry trades, potentially drawing investors back into long USD/JPY positions. MUFG also discusses the limited risk associated with the BoJ's upcoming meeting, as well as other factors that could support USD/JPY, including geopolitical risks and rising global inflation concerns.

Key Insights:

1. Delayed BoJ Rate Hike Expectations:

  • MUFG points out that the postponement of market expectations for a rate hike by the Bank of Japan creates a window of opportunity for carry trades in USD/JPY. This delay is likely to attract investors looking to capitalize on the interest rate differentials between the two currencies.

2. Yen Selling and BoJ Meeting in January:

  • The delay in the rate hike timeline has increased the belief that Japan may not hike rates at all, which could lead to further yen selling. MUFG suggests that the BoJ's upcoming meeting in January is a low-risk event, with little expectation of significant changes in Governor Ueda's cautious rhetoric.

3. Return to Carry Trade Support:

  • The resurgence of the carry trade is expected to provide support to USD/JPY, with limited risks associated with the BoJ's stance for the time being.

4. Geopolitical Risks and Inflation Factors:

  • MUFG highlights the potential impact of geopolitical risks and higher crude oil prices as negative factors for the yen, which could further support USD/JPY. Additionally, the rise in global inflation risks may make the Federal Reserve hesitant to adopt a dovish narrative in the short term, given the perceived increase in inflation risks.

Market Implications:

  • The anticipated return of the carry trade in USD/JPY suggests potential opportunities for traders and investors. Factors such as the BoJ's policy decisions, geopolitical developments, and inflation trends are expected to influence the currency pair's performance.


  • MUFG's analysis points to the likelihood of a carry trade revival in USD/JPY, driven by delayed rate hike expectations by the BoJ. This development, coupled with other supportive factors, may help bolster USD/JPY in the near term. Traders and investors are advised to keep a close eye on evolving market dynamics to make informed decisions regarding the currency pair.
MUFG Research/Market Commentary


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