The European Central Bank’s record-low interest rates are pushing Japanese investors out of the region and into the U.S., and that’s weighing down the euro, according to Mizuho Bank Ltd.
“Yields in Europe are getting crushed, reducing the allure for foreign investors,” said Daisuke Karakama, a markets economist at Mizuho Bank in Tokyo. “Europe is forced to continue easing, and carry trades funded in euros will drag the common currency lower. It’s inevitable that the U.S. will be more attractive for investors.”
Carry trades involve borrowing in low interest-rate currencies to buy higher-yielding assets elsewhere. The Federal Reserve is on course to end its bond buying this month, even as the Bank of Japan maintains record stimulus. President Mario Draghi repeated over the weekend he’s ready to expand the ECB’s balance sheet by as much as 1 trillion euros ($1.3 trillion.)