How the Unwinding of the Yen Carry Trade Affects Private Equity
From increased borrowing costs to potential redemption requests by LPs to cover losses.
Volatility is high in Japan’s public equity markets. The Nikkei 225 index lost 4,451 points on Monday, its largest single-day decline since 1987. The sell-off was sparked by a surprise interest rate hike by the Bank of Japan, which strengthened the value of the Yen thereby decreasing its attractiveness in carry trades (i.e. borrowing in Yen to invest in high-yield assets elsewhere).
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