Yen Strength Triggers Carry-Trade Rotation to Yuan and Loonie
The Japanese yen’s 6% rally against the dollar since late July has forced traders to seek new funding currencies for carry trades, with the Chinese yuan and Canadian dollar emerging as primary alternatives. This shift follows a historic unwind of speculative yen shorts and hawkish signals from the Bank of Japan, which is expected to raise rates this week. While the yen remains a key funding source due to low global rates, its recent strength and regulatory warnings have reduced its attractiveness, prompting a rotation toward other low-yield currencies.
