you can borrow JPY and invest in USD and make 4-5% on it.
I have JPY, can I make money on it, or do I need to borrow it? Is the idea here to buy USD, wait for the price to go up, and then sell it back in JPY?
I have JPY, can I make money on it, or do I need to borrow it? Is the idea here to buy USD, wait for the price to go up, and then sell it back in JPY?
After you pay back the 2% interest to the original lender, you're left with 4% as profit.
This usually happens when one government pushes banks for lower interest rates (to stimulate the domestic economy).
It creates a large volume of trades buying USD with JPY, and by doing so causes the JPY currency to become less valuable relative to USD.
They don't mind the currency going low as it helps exports but going too low, too fast is a problem. Increasing interest rates to narrow the spread will affect the economy. So they are walking a very tight line here between JPY/USD spreads and domestic economy/interest rates. All global economies are to some extent but since JPY is trusted and has had low interest rates for decades, it's popular within the finance industry for this kind of trade.
Borrowing yen now to buy dollars is sort of like shorting a stock when the price already dropped. The interest rate difference makes it a cheaper bet, but it’s still a bet and could go bad if the yen strengthens.
Within a few years, those borrowers (whose income was naturally denominated in Australian dollars) got a very painful lesson in that risk, when the exchange rate between the Australian dollar and the Swiss franc moved significantly, putting them very much underwater on those loans.
(This became known as the "Swiss loans affair", with allegations that the banks in question had in many cases not adequately informed the borrowers of the risk).
https://www.smbctb.co.jp/en/timedeposit2404/?icid=24_en_top_...