Japan Monetary Policy Shift and Taiwan Rate Hike Impact on Yuan's Appeal for Carry Trade

The recent changes in Japan's monetary policy and the unexpected rate hike in Taiwan have bolstered the allure of the yuan as a funding currency for the global emerging-market carry trade. This has prompted investors to rethink their strategies, especially following a lull in the strong performance of dollar-funded trades. The shift comes amid indications that the Federal Reserve may not implement aggressive easing measures as previously expected. Carry traders typically borrow in low-yielding countries to invest in higher-yielding assets, often in emerging markets. An ideal funding currency for this practice is one with low volatility and limited potential for appreciation.