Why is the Japanese Yen the Preferred Currency for Carry Trades?

Xiaohuang: DOORM, why is the Japanese yen the preferred currency for carry trades among all global currencies?

DOORM: Xiaohuang, the Japanese yen is the preferred currency for carry trades mainly because Japan’s interest rates have been extremely low for a long time, even negative. This makes the cost of borrowing yen very low, allowing investors to borrow yen and then invest the funds in higher-yielding assets to earn the interest rate differential. Additionally, the yen has been depreciating over the past few years, which further increases the attractiveness of carry trades, as investors can profit not only from the interest rate differential but also from exchange rate movements.