Japanese Yen sustains funding role in Latin American carry trade

Japanese Yen: The Japanese yen is Japan’s national currency and remains a widely used funding currency for carry trades because investors can borrow yen and deploy the proceeds into higher-yielding assets abroad. In the reported development, the yen continues to fund Latin American positions despite the Brazilian real weakening against it, as other regional currencies have remained resilient. Key risk: A stronger yen or more restrictive Bank of Japan policy could raise repayment costs for yen borrowers and trigger an unwind of carry-trade positions. Carry trade: The strategy involves borrowing relatively low-cost yen to invest in higher-yielding Latin American currencies or assets, with returns exposed to exchange-rate losses if the target currency falls. Regional divergence: Following Brazil’s political developments, the real weakened against the yen while the Chilean peso, Colombian peso, and Mexican peso gained, preserving demand for yen-funded Latin American trades.