New Delhi: The Bank of Japan (BOJ) raised interest rates by 15 basis points last week. Earlier in March too, the Central Bank of Japan had raised interest rates. Its aim is to strengthen its currency Yen and boost the economy.

Japan is traditionally considered a country with low interest rates. This is the reason why traders take loans from Japan at cheap rates and exchange them into dollars and invest in other countries, mostly in the US stock market. This investment strategy is called carry trade. But, after the interest rates increased in Japan, this strategy has become very expensive.

Now what will be the problem in carry trade?

Investors from all over the world consider the Japanese currency Yen to be very good for carry trade. But now the value of Yen has increased a lot against the dollar. Bank of America says that Yen is one of the currencies that has increased the most. Due to this, investors doing carry trade are facing a double whammy.

Rising interest rates in Japan mean that traders will have to pay more interest on borrowed yen, and they are also facing huge foreign exchange losses. This has led to them selling shares in the stock market, which is affecting markets around the world.

A matter of concern for India too?

Japanese investors have also invested in many companies in India. If the value of Yen increases further, then Japanese investors may increase selling. Due to this, the correction in the Indian stock market may get prolonged.

Mutual funds and retail investors have been investing a lot of money in the stock market for some time now. In such a situation, it is expected that they can compensate for the decline caused by the selling by Japanese investors, because they are implementing the 'buy on dips' strategy.