Yen Carry Trade

• [UNVERIFIED] In mid-August 2024, the yen carry trade — the world’s largest liquidity trade — experienced a structural breakdown, with the Bank of Japan subsequently stating that global markets are ‘totally unstable.’

  the largest trade in the world the yen carry trade which is a liquidity trade for the investment world broke down. the mark the global markets are totally unstable

  • Correction: The yen carry trade disruption and BOJ policy concerns in August 2024 are documented events, but the specific quoted statement ‘totally unstable’ requires verification from official BOJ communications or transcripts.
• [UNVERIFIED] The yen carry trade unwind risk increases as Japanese interest rates rise and the yen depreciates, simultaneously causing bond prices to decline for carry trade participants who own JGBs.

  And as the interest rates go up in Japan, which they are going, guess what? The bond prices go down. Remember, you bought the bonds and borrowed the money. So the bonds, you still own them and they’re now going to go down in price. They are going down in price and you’re in the yen, which is also going down in price

• [UNVERIFIED] The yen carry trade faces multiple potential unwind scenarios: yen depreciation to 150-160 levels would make positions unprofitable and trigger margin calls; yen appreciation to 125 would also break carry economics; forced selling by Japanese banks and insurers to repatriate capital would accelerate unwinding.

  we could see the yen carriage trade break for a multitude of reasons. One there they need to sell to bring home. Two, the yen drops down to 150, 155, 160. That’ll break the yen carry trade. It could rally to 125. That would break the yen carry trade

• [UNVERIFIED] The Yen carry trade unwind remains incomplete and the full extent of leveraged positions has not yet been revealed through market events.

  the Yen carry trade is a big big big trade it still hasn’t worked its way through we still don’t know who has blown up

• [UNVERIFIED] The yen carry trade has not ended and remains structurally intact. If Japan is forced to continue defending the yen with FX intervention (potentially spending $200-500 billion), US bond yields could rise significantly as Japanese investors reduce foreign holdings.

  we haven’t seen the end of the yen carry trade. And if they are forced, they’ve already spent 79 billion, but if they’re going to spend two, three, four, 500 billion to defend the yen, we could see much higher rates here in America.

• [UNVERIFIED] If the yen carry trade unwinds, Cayman Islands-based hedge funds holding approximately $1.85 trillion in leveraged US Treasury positions will be forced to sell, creating cascading Treasury liquidations.

  If the yen carry trade breaks, it’s going to break the Cayman Island. So here, if we go into some kind of financial issue, doesn’t matter what it is, and people need cash. These two are going to sell treasury.

• [UNVERIFIED] The yen carry trade could experience sequential unwind scenarios before reaching extreme levels, with multiple opportunities for yen appreciation.

  So we have many cases sequentially where the yen could move up strongly before it goes to 300 like the gentleman says.

• [UNVERIFIED] If the basis trade unwinds, Japanese holders — who are highly leveraged in US Treasuries — will be forced to sell, driving Treasury prices down and yields up, potentially forcing the US government into a major quantitative easing program.

  If the basis trade breaks, it’s going to break Japan. If the yen carry trade breaks, it’s going to break the Cayman Island. So here, if we go into some kind of financial issue, doesn’t matter what it is, and people need cash. These two are going to sell treasury. So, our treasuries could be going down in price, up in yield, and the government may be forced to do a major QE to buy all the treasuries coming out of there.

• [UNVERIFIED] JP Morgan research indicates the yen carry trade unwind is approximately 50% complete, suggesting continued market volatility ahead.

  JP Morgan warned this morning we’re only about halfway through unraveling of the Yen carry trade

Carry Trade Dynamics

• [UNVERIFIED] Institutions are unwinding Yen carry trades, selling US stocks and covering Japanese bond positions, creating volatility that may manifest as wave-like market movements rather than a clean directional correction.

  we’re going to see like waves of selling and going back and forth okay the tides come in the tides go out as institutions around the world redo their Yen carry trade so it was Thursday and Friday more of a day where an institution made a move out of the uh US stocks and then when uncovered their bonds over in Japan

Carry Trade Unwind Risk

• [UNVERIFIED] A sustained yen depreciation combined with rising Japanese government bond yields could trigger an unwind of the global yen carry trade, with potentially severe market consequences.

  will this break the yen carry trade. That’s really where we’re at. So if it does, we know the consequences well will be fairly dire

Carry Trade Vulnerability Scenario

• [UNVERIFIED] If USD/JPY fell to 130-125, the yen carry trade would unwind, potentially triggering severe disruption to global markets and the Japanese economy.

  if we did go to 130 125, it would break the Japanese yen trade which would literally virtually practically you know sink the Japanese economy

Deleveraging Spiral

• [UNVERIFIED] If yen carry unwinds and basis trade participants are forced to sell Treasuries to meet margin calls, Treasury prices fall and yields rise, potentially triggering forced liquidation in the basis trade itself — creating a cross-asset deleveraging spiral.

  If um the yen carry trade breaks and that and then what are they going to sell? Well, they’re going to sell their treasuries… basis trade is all based on those rates. And if they all of a sudden start rocketing up and they go to losses, they have to cancel out the basis trade, which would then put huge pressure on our treasury pricing. Our prices are going down, our yields would rock it up.

Evidence Supporting

• [UNVERIFIED] Japanese regulators have banned domestic banks and insurance companies from purchasing additional 40-year government bonds due to their excessive holdings.

  they are actually banned by the government from buying any more 40-year Treasury bond. They can’t buy them.

Liquidation Scenario

• [UNVERIFIED] Full liquidation of the yen carry trade would cause the yen to appreciate dramatically beyond normal levels, potentially exceeding prior peak valuations.

  if we really really started to see the liquidation of the yen carry trade, the yen would more than go up. It would skyrocket

Prediction Statement

• [UNVERIFIED] The yen carry trade may be on the verge of breaking as BOJ rate normalization compresses carry from 1.25% to 0.5% while simultaneously causing JGB price declines that trigger margin calls, forcing institutions to sell foreign assets and repatriate yen.

  I think we’ll find you tell me when we’re done that the yen carry trade may be on the verge of breaking unless they do something. I don’t know what they can do but this is what’s going on.

Spillover Mechanism

• [UNVERIFIED] A rapid, disorderly unwind of the yen carry trade can spill over into the US Treasury basis trade primarily through funding channels, leverage channels, and risk management channels — not through mechanical direct linkage.

  when the yen carry trade breaks, a rapid disorderly unwind, it can absolutely spill over into treasury basis trade, mainly through funding, leverage, and risk management channels. The link is not mechanical or one for one.

Stress Thresholds

• [UNVERIFIED] If the yen weakens to 160 per dollar or beyond, significant market stress is expected given Japan’s daily currency market intervention.

  if the yen starts going down which means up in price okay but down in value. So if it hits 160 or above there’s going to be real issues here

Treasury Market Implications

• [UNVERIFIED] A full yen carry trade unwind requiring Japanese institutions to sell US securities and repatriate capital could trigger treasury selling pressure and destabilize US bond markets.

  they would have to sell their securities, i.e. our treasuries to bring the money home. And Bent’s like, I don’t want that to happen

Wave Pattern

• [UNVERIFIED] The yen carry trade unwind is unfolding in waves over multiple days rather than in a single-day liquidation event, with selling pressure persisting beyond initial triggers.

  this selling is going to come in waves it’s not going to happen in one day the world does not end in one day

What Is Predicted

• [UNVERIFIED] A major geopolitical crisis is predicted to trigger a two-phase currency market sequence, beginning with an anomalous US dollar rally where Treasury yields rise simultaneously, followed by a rapid and large-scale strengthening of the Japanese Yen as carry trades are unwound.

  they said phase one the US gets the initial bid as a reflex safe haven, but watch the dollar anomaly signal. If the 10-year yields are rising while the crisis intensifies, that’s the 1945 inversion… Then it says the second phase begins immediately, which would be the end does the best on a percentage move basis. And the carry trade unwind JP the yen shorts have been the global have been financing the global trade

• [UNVERIFIED] The channel’s analysis of the Yen carry trade unwind — measured against the VIX and the carry trade index — suggests that two to three times the observed selling volume may remain in the trade, implying the unwind is not yet complete.

  I would say you have two to maybe three times the amount of selling still available in this trade

• [UNVERIFIED] The unwinding of the Yen Carry Trade is a significant systemic risk, with the primary leverage point located in the Japanese 40-year government bond.

  where is the leverage, and the leverage is in the Japanese 40-year Treasury.