April 26 (Bloomberg) — Currency carry traders who borrow in countries with low interest costs to fund purchases in markets with higher yields are seeing returns rebound from two- year lows as the Federal Reserve and Bank of Japan show no urgency to raise interest rates.
The carry trade is reviving as traders step up bets that the Fed and BOJ will keep their target interest rates at record lows for longer than was anticipated earlier this year. While stronger currencies may help emerging economies damp inflation, they also risk curbing exports they rely on to bolster growth.
“The dollar and the yen are good funding currencies as their rates are so low now,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen is especially ideal as Japan won’t be able to raise rates for a very long period of time due to the earthquake and the intervention may prevent the yen from rising.”