Emerging market hedge funds and the yen carry trade

For emerging market hedge funds, funding through the yen carry trade provides the possibility of enhancing returns by funding in a low coupon currency. This study examines whether emerging market hedge funds are exposed to the value of the Japanese yen and whether this is the key exposure associated with their use of leverage. The results suggest that the returns of these hedge funds are only weakly exposed to yen exchange rate but the use of leverage is associated with yen exposure, which implicates the importance of the yen carry trade.