Live Markets: Yen carry unwind has left high-yielders unscathed

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09/09/2026 10:49

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YEN CARRY UNWIND HAS LEFT HIGH-YIELDERS UNSCATHED 
Every time the Japanese yen surges a bit more, fund managers with long positions in high-yielding emerging market currencies must refresh their screens nervously. 
Morgan Stanley analysts have a note out, however, suggesting they don't need to worry that much. 
The connection between the two is one long-popular trade that involves borrowing in low-yielding yen to buy high-yielding EM currencies, such as the Mexican peso, and profiting from the difference between the two rates. 
The yen's surge this month could wipe out such trades, and cause traders to unwind them, a process that would involve selling the high-yielding leg of the trade. 
But actually this hasn't really happened at all. The yen has strengthened about 4% this month so far JPY=EBS, yet the Mexican peso has also strengthened, not by a great deal, but what it certainly hasn't done is fall. 
Part of the reason is while "short yen, long peso" is a good illustration of a carry trade, there are plenty of other options and those aren't affected by this idiosyncratic yen move. 
In fact, a shift to funding carry trades using the Swiss franc already could be under way, and there is also chatter about funding carry trades in euros, Swedish crowns or even maybe China's yuan — though that is strengthening too. 
"Obviously, USD/JPY moving lower disrupts that particular carry trade, but the question is whether it spills over into broader risk sentiment and disrupts other versions," said the Morgan Stanley analysts.
     "We've always been sceptical about the link here and don't believe JPY strength undermines the case to be long carry. It simply means investors should consider changing their funding currency." 
The real worry for carry trades is a pick up in general FX volatility as that would affect both sides of all carry trades.
(Alun John)
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FOR EARLIER LIVE MARKETS POSTS 
ENERGY PRICES THE FOCUS AGAIN CLICK HERE
EUROPE BEFORE THE BELL, EYEING ANOTHER SOFT OPEN CLICK HERE
MORNING BID: $100 BRENT IN SIGHT, YEN DEFIES GRAVITY CLICK HERE