.JPG?width=780&fit=cover&gravity=faces&dpr=2&quality=medium&source=nar-cms&format=auto)
Japanese national flag hoisted atop of the Bank of Japan headquarters building is seen between traffic signals in Tokyo on Jan. 23, 2025. © Reuters
Aruhan Rui Shi _is an associate economist, and Prashant Pande is a senior financial specialist at the ASEAN+3 Macroeconomic Research Office (AMRO)._
The sharp appreciation of the Japanese yen in August 2024 reignited concerns over the broader implications of many investors simultaneously exiting their currency carry trades -- a strategy where investors borrow in a low-interest rate currency (the funding currency) and invest in a higher-yielding asset in another currency (the investment currency). The strategy can be highly profitable if the interest rate on the funding currency remains lower than that on the investment currency, and the low-interest rate currency does not appreciate significantly.