The Yen Carry Trade: Currency Risk and the Myth of Free Income
Year: 2026
Type: article
Abstract: Borrow JPY at a low rate, invest in a higher-yield USD asset, and earn the difference. This is the crux of the yen carry trade. However, this entails a certain FX exposure (long USD and short JPY), and FX movements can overwhelm the carry. With a mathematical analysis and a backtest, this paper tests whether a dynamic hedge can suppress the currency risk. This paper's goal is to better understand why the textbook yen carry trade is, in reality, neither free nor stable income.
Author: Sprauel, Samuel
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7204096037
FWCI:
Cites:
Cited by:
Related to: