in the United States is 5.5%, while the interest rate in Japan is only .5%. Since the currency pair is USD/JPY, subtract 5.5 - .5 = 5%. Since there is 5% left over, that amount needs to be credited to the trader that is long the USD/JPY pair. That's the additional bonus that comes with a successful carry trade.
The basic reasoning behind this is that when you are trading this currency pair, you are "borrowing" the Yen at .5% to purchase US Dollars, which are paying 5.5%, so 5% becomes the left over difference. The interest is figured daily, and while holding this position, you will earn interest from the daily rollover.
Certain currency pairs have a tendency to catch a long term upswing when interest rates change, in part because a large number of traders will specifically look for the opportunity to take advantage of these pairs and the interest positive rates that they offer. This can be a very beneficial long term trade strategy.
If you're considering a long term position with a currency pair, the interest rate may be a major consideration since up to a quarter of your profits from a long term carry trade may come from the positive interest being credited to your account. Not a bad way to go, making profit from the interest of leveraged money.
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