Carry Trade ETFs

The Japanese yen and related currency exchange traded fund are depreciating in value as the government implements aggressive quantitative easing measures. Consequently, more currency traders are implementing carry trades to capitalize on the depreciated yen.

For carry trades, currency traders would borrow a low yielding currency, like the yen, to fund investments in higher yielding assets, like the Australian dollar. A depreciating currency is also better for a carry trade as the investor would have to repay less when he or she returned the borrowed funds.

However, the yen carry trade has been less popular in the past few years as U.S. and Eurozone monetary easing pushed rates to near-zero levels.

Now that the yen is depreciating again, traders have turned back to the Japanese currency. The yen depreciated 13% against the U.S. dollar in the past three months, dipping to a two and half year low, reports Dhara Ranasinghe for CNBC. [Yen ETF Bounces After Bank of Japan Decision]

Meanwhile, the CurrencyShares Japanese Yen Trust Fund (NYSEArca: FXY) is down 12.3% over the last three months. [Japan ETFs: More Room for Yen Weakening?]

“The yen is regaining its ground as a funding currency,” Jesper Bargmann, head of G11 currencies at Royal Bank of Scotland, said in the article. “Sentiment has changed in markets, pretty much since January 1. Risk appetite has returned, there’s increased confidence and a search for yield, so the yen seems to be suffering as a result of that.”