Singapore Dollar Becomes Carry Trade Funder as MAS Pauses Policy
The Monetary Authority of Singapore's recent policy pause and falling local money market yields make the SGD a cheaper borrowing option for investors, strategists note.
SGD's Rising Appeal for Funding
The Singapore dollar (SGD) is gaining traction as a preferred funding currency for carry trades, according to market strategists. This shift is driven by lower borrowing costs and diminishing expectations for further SGD appreciation, making it more attractive compared to the Japanese yen (JPY).
The Monetary Authority of Singapore (MAS) maintained its policy settings last week, a move that followed consecutive tightening actions in April and July this year. This pause reinforced market expectations for more limited gains in the currency.
Concurrently, significant safe-haven capital inflows into Singapore have pushed down forward-implied yields, which measure short-term borrowing costs in local money markets.
Divergent Central Bank Stances
This increased appeal for the SGD contrasts sharply with the Bank of Japan's (BOJ) recent policy actions. The BOJ increased its policy rates by 25 basis points in September, with swap markets now pricing an 80% likelihood of another quarter-point hike by December.
These hawkish signals have raised borrowing costs for the yen and increased the risk of further JPY appreciation, diminishing its traditional role as a carry-trade funding currency.
The BOJ's tightening stance has supported a 2.7% gain in the yen against the US dollar in the second half of 2026, while the Singapore dollar saw a more modest 1.3% rise against the greenback over the same period.
Market Metrics and Analyst Perspectives
Current market data further supports the SGD's funding appeal. The Singapore dollar’s three-month forward-implied yield currently hovers around 1.65%, placing it among the most affordable funding currencies globally, alongside the yen and Swiss franc, according to data compiled by Bloomberg.
Furthermore, the SGD has become less volatile; three-month option-implied volatility for the US dollar-Singapore dollar pair has fallen to 3.55%, marking the largest decline over the past year among Southeast Asian currencies.
Abbas Keshvani, Asia macro strategist at RBC Capital Markets, noted the attractiveness of funding in SGD due to its negative carry and limited currency upside. Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Markets, added that low Singapore dollar rates, compared to typical high-yielding currencies, enable its function as a carry funder.
The MAS's decision to leave its exchange rate band's slope unchanged this month, following earlier tightening, could cement the Singapore dollar’s role as a regional funding currency, according to Joey Chew, a strategist at HSBC Holdings Plc, in an October 14 note.
For investors engaged in carry trades—borrowing in a low-yield currency to invest in higher-yielding assets elsewhere—the SGD now presents a compelling alternative to the yen. The combination of low funding costs and reduced currency volatility in Singapore lowers the risk that exchange-rate movements will erode the extra yield earned.
This shift requires investors to reassess their funding strategies, with the next BOJ rate decision in December being a key event to watch for further divergence.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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