Impact of Currency Appreciation on Carry Trade

Investors often engage in carry trades as a strategy to capitalize on differences in interest rates between currencies. In a typical carry trade, an investor borrows in a currency with a low-interest rate and invests in a currency with a higher interest rate, aiming to profit from the interest rate differential as well as potential currency appreciation.

Suppose an investor is considering a carry trade involving the Japanese yen (JPY) and the Australian dollar (AUD). The current interest rate for JPY is 0.1%, while the interest rate for AUD is 3.5%. If the investor executes the carry trade, which of the following outcomes is most likely?