Carry trades continue to attract institutional and retail traders seeking yield opportunities amid shifting global interest rate policies. Despite aggressive rate cuts by central banks since 2023, the Bank of Japan’s (BOJ) steadfast commitment to its ultra-low policy rate of 0.50% has solidified the Japanese yen’s position as the world’s cheapest funding currency. This has reignited interest in positive-carry trades involving JPY crosses, particularly as risk appetite stabilizes following the U.S. presidential election and growing speculation that the Federal Reserve may pause its cutting cycle sooner than anticipated.
While carry trades offer an elegant way to generate returns by capitalizing on interest rate differentials, they are not without risks. The 2024 yen carry-trade unwind serves as a stark reminder of how quickly market conditions can change, leaving traders exposed to sudden currency appreciation and forced liquidations. This article examines the mechanics of carry trades, highlights the most attractive positive-carry pairs in November 2025, and explores the broader macroeconomic context driving their resurgence.
Key Takeaways:
- Japanese Yen remains the top funding currency due to its ultra-low interest rate of 0.50%, upheld by the BOJ’s policy.
- Carry trades thrive on interest rate differentials, with pairs like MXN/JPY and AUD/JPY offering attractive positive-carry opportunities.
- The global interest rate divergence highlights significant yield opportunities for traders in November 2025.
- Risks like sudden policy shifts and high-yield currency volatility necessitate disciplined risk management strategies.
- Understanding the mechanics of Forex trading and carry trades is crucial for navigating this strategy-driven market successfully.
Understanding Carry Trades: Positive vs. Negative Carry
At its core, a carry trade involves borrowing in a low-interest-rate currency and investing in a high-interest-rate currency, earning the difference in yields. In Forex trading, this translates to going long on the high-yield currency while shorting the low-yield (funding) currency.
Each night at rollover, brokers credit or debit traders with a swap based on the interbank interest rate differential, adjusted for broker fees. This creates two scenarios:
- Positive Carry: Traders earn money for holding positions overnight when the high-yield currency’s interest rate exceeds that of the funding currency.
- Negative Carry: Traders pay to maintain positions when the funding currency’s rate is higher than the yield of the traded currency.
The Formula Behind Carry Trades
The simplified calculation for daily swap earnings is:
Daily swap ≈ (Interest rate high – Interest rate low) / 365 × position size
For example, a trader holding 1 standard lot (100,000 units) of AUD/JPY would earn daily swaps based on the difference between Australia’s cash rate (~4.10%) and Japan’s policy rate (0.50%).
Current Interest Rate Landscape: November 2025
As of mid-November 2025, global benchmark rates reflect significant divergence among major economies:
| Currency | Central Bank Rate |
|---|---|
| JPY | 0.50% |
| CHF | ~0.25–0.50% |
| EUR | 2.00% (ECB deposit) |
| USD | ~4.25–4.50% |
| CAD | 2.25% |
| AUD | ~4.10% |
| NZD | 2.50–3.00% |
| MXN | ~10–11% |
| TRY | Extremely high (~40%) |
Among these currencies, the Japanese yen remains the undisputed funding king due to its persistently low interest rate—a policy upheld by BOJ Governor Kazuo Ueda, who has emphasized that further hikes will only occur if wage growth sustainably exceeds 3%.
Top Positive-Carry Pairs in November 2025
The following pairs represent some of the most attractive opportunities for yield hunters this month:
1. MXN/JPY
- Annualized Carry: ~9.5–11.5%
- Typical Daily Swap: +25 to +35 USD (1 standard lot)
- Why It’s Hot: Mexico’s central bank (Banxico) continues its inflation-fighting stance with rates near 10–11%, making MXN/JPY one of the highest-yielding pairs globally.
2. TRY/JPY
- Annualized Carry: ~35–45%+ (extremely volatile)
- Typical Daily Swap: +80 to +150 USD (varies significantly)
- Why It’s Hot: Turkey’s central bank maintains sky-high rates amid persistent inflationary pressures, but political and economic risks make this pair highly volatile.
3. AUD/JPY
- Annualized Carry: ~3.4–3.8%
- Typical Daily Swap: +8 to +12 USD
- Why It’s Hot: The Australian dollar benefits from commodity tailwinds and risk-on sentiment, with AUD/JPY trading near multi-year highs at 104.50.
4. NZD/JPY
- Annualized Carry: ~2.2–2.8%
- Typical Daily Swap: +6 to +9 USD
- Why It’s Hot: Similar to AUD/JPY, but with slightly lower yields due to New Zealand’s more moderate monetary policy.
5. USD/JPY
- Annualized Carry: ~3.7–4.2%
- Typical Daily Swap: +9 to +13 USD
- Why It’s Hot: The U.S. dollar remains supported by sticky inflation and fiscal expansion expectations under the new administration.
6. CAD/JPY
- Annualized Carry: ~1.8–2.2%
- Typical Daily Swap: +4 to +7 USD
- Why It’s Hot: Oil price strength adds a directional bias to this pair, though carry returns are relatively modest compared to other pairs.
(Data sourced from major ECN brokers — IC Markets, Pepperstone, FXPro — as of November 17–18, 2025.)
Why Carry Trades Are Back in Favor
Several macroeconomic factors are driving renewed interest in carry trades:
- BOJ Policy Stability
The Bank of Japan remains committed to ultra-low rates, providing traders with confidence in JPY funding stability. - Fed Cutting Cycle Slowing
Markets now anticipate only one or two additional 25 basis point cuts into 2026 as inflationary pressures persist in U.S. service sectors. - Rebounding Risk Appetite
The VIX index has dropped below 15, signaling reduced market volatility, while global equities approach all-time highs—a favorable environment for risk-on currencies like AUD and MXN. - Fading Scars of the 2024 Unwind
While traders remain cautious after last year’s abrupt yen appreciation, current conditions suggest a more stable outlook for carry trades.
Why the Fresh Unwind Hit Now—November 2025 Edition
- Japanese yields exploding: 10-year JGB yields spiked to 1.72% on fiscal worries—highest in decades—making “risk-free” JGBs competitive again.
- Yen safe-haven revival: Global growth fears + U.S. shutdown delays = flight to JPY.
- Leverage still too high: Many funds rebuilt positions after 2024’s scare but with only marginally lower gearing.
- Rate differential compression: Fed on hold (or slow-cutting) while BOJ signals no rush lower.
Result: The Bloomberg EM carry index (short JPY vs. basket of high-yielders) has erased almost the entire year’s profit in weeks—exactly mirroring the chart you shared.
Managing Risks in Carry Trades
Despite their appeal, carry trades come with inherent risks that require careful management:
- Central Bank Policy Shifts
A sudden BOJ rate hike could trigger rapid yen appreciation and force liquidations of long JPY-cross positions. - Risk-Off Sentiment
Renewed geopolitical tensions or financial instability could drive investors toward safe-haven assets like JPY. - Volatility in High-Yield Currencies
Pairs like TRY/JPY are particularly vulnerable to political risks and economic shocks, making them unsuitable for risk-averse traders.
For those new to the market, Forex Trading Basics offers essential insights into trading fundamentals and risk management strategies.
Conclusion
Carry trades remain a powerful tool for yield hunters navigating today’s Forex landscape, with pairs like MXN/JPY and AUD/JPY offering attractive opportunities for positive carry amid stable macroeconomic conditions. However, traders must remain vigilant against potential risks such as sudden policy changes or volatility spikes in high-yield currencies.
As always, understanding the intricacies of carry trade mechanics and maintaining disciplined risk management are crucial for success in this strategy-driven market environment.
For more insights into Forex trading and market trends, visit Fortune Prime Global, your trusted partner in navigating global financial markets.
