It is a common misconception that the carry trade is mainly a yen-based phenomenon. This is due to the fact that the Japanese government has kept interest rates near zero for more than a decade, so borrowing yen at close to 0.50% to buy higher yielding currencies has been the dominant type of carry trade in recent years. The carry trade zigs and zags reflect the never ending battle between the greed for higher yield and the fear of principle loss. These swings will always be there for the forex trader. In constructing a carry trade portfolio, it's a good idea to select a currency pair not only on its interest rate differential but on inflation considerations. This will give a portfolio support on the currency value.
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