Japanese households

However, there still remains genuine demand for the yen carry trade, stemming in large part from Japanese individuals. Interest rates remain extremely low in Japan, with the overnight rate still at 0.50 percent.

Japanese investors have shifted assets into Australian dollar, New Zealand dollar, and U.S. dollar accounts.

“Billboards on the sides of Japanese highways encouraged Japanese households to talk to their bankers about putting their assets in non yen denominated accounts,” says Woolfolk. “It’s believed to be a no-brainer there.”

However, Woolfolk says the Japanese housewife traders, known as “Mrs. Watanabes” in the financial press, are nonprofessional players that typically take longer to reactto market information.

“Those retail investors are seen as less sensitive to bouts of market volatility,” Powell says. “From their point of view, the carry trade is not over. The main driving factor in the yen carry trade is low interest rates in Japan, and they remain.”

For the present, the speculative community has stepped away from the yen carry trade amid the volatile global market conditions. But if volatility decreases later this year, players might gravitate back toward the strategy. Generally, the yen carry trade tends to be most profitable during times of low volatility.