In today’s Financial Times column The Long View, John Authers points out a redeeming argument for the carry trade. A typical carry involves borrowing in one currency, the one with significantly lower borrowing costs, and simultaneously investing the borrowed funds in another currency with higher yields. The argument for the carry trade holds up well as long as the currencies involved trade within a very narrow band. The most benevolent of these carry trades involved the Australian Dollar and the Japanese Yen. That trade worked exceptionally well for a good decade until 2008 when investors sought the safe-haven of their own currency and the carry completely fell apart.
Two years later, risk appetite is slowly coming back and there are some good arguments as to why a carry trade between Japanese Yen and Australian Dollar might be worth considering again.
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