Carry Trade Return

Forex & Currencies

Updated Apr 2026 • Has calculator

Total return from borrowing in a low-rate currency and investing in a high-rate currency.

What is Carry Trade Return?

A carry trade borrows money in a low-interest-rate currency and converts it to invest in a higher-interest-rate currency, profiting from the interest rate differential. The total return equals the rate differential plus any currency appreciation (or minus depreciation). Carry trades can be highly profitable when exchange rates are stable, but they are vulnerable to sudden unwinding: if the high-yield currency depreciates sharply, losses can quickly exceed the accumulated interest differential. The USD/JPY carry trade — borrowing in JPY at near-zero rates and investing in USD — is among the most widely followed examples.

Formula

Carry Return = (r_domestic − r_foreign) + FX Change %

Worked Example

January–June 2024

Step 1 USD interest rate: 5.33% (Fed Funds Rate)

Step 2 JPY interest rate: 0.10% (Bank of Japan policy rate)

Step 3 Interest differential: 5.33% − 0.10% = 5.23%

Step 4 USD/JPY change H1 2024: USD appreciated ~+8.5% vs JPY

Step 5 Total carry return = 5.23% + 8.5% = 13.73%

Step 6 → USD/JPY carry trade delivered ~13.73% in H1 2024 before the August 2024 unwind

Source: FRED — Fed Funds Rate & Bank of Japan Policy Rate (2024-06-30)

Calculate Carry Trade Return

Investment Currency Rate

Interest rate of the high-yield investment currency (e.g. USD)

Funding Currency Rate

Interest rate of the low-yield funding currency (e.g. JPY)

FX Appreciation (%)

% change in investment currency vs funding currency (positive = investment currency strengthened)

Total Carry Return

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Not investment advice.

How to Interpret Carry Trade Return

< 0

Negative Return — FX loss exceeded interest differential

0 – 5

Modest Carry — rate differential but limited FX gain

> 5

Strong Carry — favorable rate differential plus FX gain

📚 Forex Basics — Complete the path

Sources