Strategists point to the yuan as a new alternative to the yen for carry trades after the Bank of Japan signaled a rate hike. The yuan strategy has returned 1.5% over three months, while the yen has lost 1%, according to Bloomberg. Strategists from Citigroup, Maybank, Societe Generale, and BBVA note that low borrowing costs and the yuan's stability increase its appeal, while the yen has strengthened about 4% since early September, reducing its attractiveness as a funding currency. However, the scale of yuan carry trades remains limited compared to the yen, as the yuan is not fully freely convertible and liquidity in China's long-term lending market is low. But if the BOJ raises rates in September, yuan borrowing costs could fall below the yen's for the first time, potentially marking a significant turning point for Asia's carry trade market.
Banco Bilbao Vizcaya Argentaria S.A
Societe Generale S.A.
Maybank Securities (Thailand) PCL
Citigroup Inc.
