The ongoing carry trade is exerting downward pressure on the yen. Traders are capitalizing on Japan’s near-zero interest rates by borrowing yen and investing in currencies with higher yields, such as the U.S. dollar and the Australian dollar. This activity increases the supply of yen in the market, leading to its depreciation against other currencies.

The Bank of Japan’s (BOJ) monetary policy is a key factor driving the carry trade. With interest rates remaining at historically low levels, investors are incentivized to seek higher returns elsewhere. This creates a persistent demand for other currencies and a corresponding supply of yen.

Analysts expect the yen to remain weak as long as the BOJ maintains its current monetary policy. Any indication of a potential interest rate hike by the BOJ could trigger a reversal of the carry trade and a strengthening of the yen. However, for now, the carry trade continues to be a significant driver of yen weakness.