Investors pile into yen carry trades as dollar weakness fuels risky bets

There’s a trade on Wall Street that feels like picking up nickels in front of a steamroller, except right now the nickels are hundred-dollar bills and the steamroller seems to be parked. Investors have rushed back into yen-funded carry trades with remarkable enthusiasm, betting that the US dollar will keep sliding and that Japan’s rock-bottom borrowing costs will continue to subsidize their returns. The strategy is straightforward in concept: borrow Japanese yen at the Bank of Japan’s roughly 1.00% interest rate, convert those yen into dollars or other higher-yielding currencies, and park the money in assets like US Treasuries or emerging market bonds that pay substantially more. Pocket the difference. Repeat. The numbers behind the rush So far in 2026, the math has been generous. Carry trade strategies have reportedly returned approximately 18% year-to-date, outperforming other systematic approaches by a wide margin. The fuel for this bonfire is dollar weakness. The greenback has fallen roughly 10% against major currencies since early 2025, a decline driven by a cocktail of US fiscal anxieties, policy unpredictability, and a gradual reshuffling of global capital flows. The yen its...