Time to shine a light on the shadowy carry trade

A carry trade—in which investors borrow in a currency where interest rates are low, and invest where returns are high—can quickly unravel. Traders had made speculative bets based on the assumption that the gap between interest rates in Japan and those in America would remain wide. But the Bank of Japan’s decision to raise rates by a fraction of a percentage point on July 31st, while expectations for American rates were falling, was enough to expose them to losses. As they unwound their trades, they are thought to have set off a cascade of forced selling in everything from American tech stocks to the Mexican peso. But far too little is known about the scale of the carry trade, and the associated risks. It is time to shed light on a murky part of global finance.