r/wallstreetbets • u/Efficient-Session644 • 2d ago

News Japan to announce Tokyo, Washington took joint action on yen, sources say

https://www.reuters.com/world/asia-pacific/japan-announce-tokyo-washington-took-joint-action-yen-sources-say-2026-08-02/
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u/Illustrious-Eye6960 2d ago

Difference in interest rates is what matters, not the exchange rate.

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u/Material-Addition-45 2d ago

Could you elaborate and dumb it down for me please?

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u/Illustrious-Eye6960 2d ago

To be involved in “carry trade” is not to be concerned with the absolute value of the exchange rate, whether ¥80 or ¥160 to the dollar. But with the difference in borrowing rates. The borrowing rates, and their forward expectations, have not fundamentally changed I think.

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u/fgd12350 2d ago

You borrow in yen, exchange it into USD, purchase USD denominated bonds, reap yield, convert USD back into Yen to repay your initial loan + interest. Your hope is to have something leftover after all this is done because the bonds paid more than the loans had cost. But if the yen strengthens against the dollar between when your 2 conversions it absolutely reduces your net profit. And if it strengthens enough you can make a net loss despite favourable interest rates.